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Nov 25 '18 at 17:15 answer Borun Chowdhury timeline score: 1
Nov 25 '18 at 17:09 history edited Borun Chowdhury CC BY-SA 4.0
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Nov 25 '18 at 17:02 comment added Borun Chowdhury But I guess your point is correct in that is that the effect of the shorting the bad stock is indeed in the right direction compared to the mean. Indeed this can be clearly seen by defining the scores to be be wrt to the mean score 5 i.e. scores get shifted by -5. But the effect does not depend on the origin chosen as it is a linear problem.
Nov 25 '18 at 16:52 comment added Borun Chowdhury It shouldn't according to me but this is what the standard scores (MSCI, MorningStar etc) use. While it is true that the overall score is increasing in my example the fact that the contribution of the bad stock is to decrease the store is counterintuitive and doesn't make sense. Interestingly if the scores are shifted by -5 then this problem is not there.
Nov 25 '18 at 16:47 comment added Bob Jansen Why does your bad stock have a positive score? ;) in any case, shorting stocks with lower scores and using the proceeds for buying stocks with higher scores increases the overall score.
Nov 25 '18 at 16:31 history edited Borun Chowdhury CC BY-SA 4.0
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Nov 25 '18 at 16:24 comment added Borun Chowdhury I tried that (and this is what is MSCI says it does msci.com/esg-ratings) but I am getting some meaningless results. For instance suppose I have a good stock A with a score $s_A=10$ and a bad one B with a score $s_B=2$. If I go long A and short B with (say) weights $w_A=2$ and $w_B=-1$ then the score is $2 s_A - 1 s_B $. Note that the score of shorting B reduces the portfolio score instead of increasing it contrary to what one would have expected by shorting a bad stock.
Nov 25 '18 at 0:42 answer mperlow timeline score: 2
Nov 24 '18 at 23:54 comment added Bob Jansen Can you not just take the weighted average as long as the weights add up to one?
Nov 24 '18 at 21:48 history asked Borun Chowdhury CC BY-SA 4.0