Aayush Poddara
Employing behavioural portfolio theory for sustainable investment: Examining drawdown risks and ESG factors
Poddara, Aayush; Bhattacharya, Sujoy; Bhatt, Rathish
Abstract
This study uses behavioural portfolio theory (BPT) within the Markowitz Portfolio Theory framework to enhance portfolio management by focusing on sustainability and risk mitigation during market downturns. It selects portfolios to hedge against market lows using Conditional Drawdown at Risk (CDaR) and Expected Regret of Drawdown (ERoD). These measures help choose securities that perform well during a market decline. This study applies drawdown-based risk metrics to assist institutional investors and fiduciaries in making informed investment and fund management decisions. By merging BPT with Markowitz’s mean–variance framework, selected investments are maintained above a safety threshold, contributing to the portfolio’s overall quality and sustainability. Additionally, by incorporating an Environmental, Social, and Governance (ESG) preference function, the findings suggest that BPT built portfolios meet traditional performance standards and align with socially responsible investment principles, thereby offering higher utility and alignment with investor values focused on sustainable investing.
Citation
Poddara, A., Bhattacharya, S., & Bhatt, R. (2025). Employing behavioural portfolio theory for sustainable investment: Examining drawdown risks and ESG factors. Investment Analysts Journal, 54(1), 110-138. https://doi.org/10.1080/10293523.2024.2375818
| Journal Article Type | Article |
|---|---|
| Acceptance Date | Jun 28, 2024 |
| Online Publication Date | Aug 21, 2024 |
| Publication Date | 2025 |
| Deposit Date | Aug 22, 2024 |
| Publicly Available Date | Aug 22, 2024 |
| Journal | Investment Analysts Journal |
| Print ISSN | 1029-3523 |
| Electronic ISSN | 2077-0227 |
| Publisher | Routledge |
| Peer Reviewed | Peer Reviewed |
| Volume | 54 |
| Issue | 1 |
| Pages | 110-138 |
| DOI | https://doi.org/10.1080/10293523.2024.2375818 |
| Keywords | Capital Asset Pricing Model (CAPM), drawdown, CDaR, ERoD, behavioural portfolio theory (BPT), ESG |
| Public URL | http://researchrepository.napier.ac.uk/Output/3780976 |
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Employing behavioural portfolio theory for sustainable investment: Examining drawdown risks and ESG factors
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http://creativecommons.org/licenses/by-nc-nd/4.0/
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