Preference direction-based approach for sustainable portfolio construction
[EN] This paper aims to provide a novel framework for incorporatinginvestor preferences that integrate sustainability criteria as a thirdobjective in portfolio optimization problems. The approach isbased on the concept of preference directions, changing thegeometric properties of the objective space...
| Autores: | , , , |
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| Tipo de recurso: | artículo |
| Fecha de publicación: | 2026 |
| País: | España |
| Institución: | Universitat Politècnica de València (UPV) |
| Repositorio: | RiuNet. Repositorio Institucional de la Universitat Politécnica de Valéncia |
| Idioma: | inglés |
| OAI Identifier: | oai:dnet:riunet______::7efeb1549b36944a72501ad0d8eded6c |
| Acceso en línea: | https://riunet.upv.es/handle/10251/235846 |
| Access Level: | acceso abierto |
| Palabra clave: | Investors&apos preferences ESG pillars Sustainable portfolio selection Multi-objective optimization Socially responsible investments |
| Sumario: | [EN] This paper aims to provide a novel framework for incorporatinginvestor preferences that integrate sustainability criteria as a thirdobjective in portfolio optimization problems. The approach isbased on the concept of preference directions, changing thegeometric properties of the objective space and guiding thedirection of the multi-objective optimization. This reinterpretationof the dominance concept aids in obtaining the Pareto frontsolutions. Investors¿ preferences can be integrated before theoptimization process without modifying the algorithm, or at thedecision-making stage after obtaining the efficient frontier. Weempirically test our approach¿s performance on actual sociallyresponsible funds and on the S&P 500 index. Our findingssuggest that this approach provides a better understanding ofESG preference integration by refocusing the region of interest,facilitating more effective investor decision-making. The benefitsof our approach include improved portfolio sustainableconstruction and a more comprehensive understanding ofinvestor preferences in sustainable investing. |
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