Doing well by doing good? Employee satisfaction update
A while ago we highlighted a very interesting paper by Alex Edmans:
Alex has published a version of the paper that looks at the 1984 -2009 paper in the Journal of Financial Economics:
He has another version which looks at the 1984-2005 period:
Recently, a group of my highly motivated Drexel students did an independent backtest of the returns for the employee satisfaction strategy from February 2006 through February 2012. An “out of sample” independent verification study, if you will.
As a reminder, the strategy works as follows:
- Identify the 100 best companies to work for at http://money.cnn.com/magazines/fortune/bestcompanies/2011/index.html
- Go long firms with high employee satisfaction.
There are four ways of investing in the strategy:
- p1. Rebalance the portfolio across the list of the best companies to work for.
- p2. Hold the original best companies to work for on 2006 throughout the period.
- p3. Add new companies on updated list, but don’t drop companies that appeared on previous lists.
- p4. Include only companies that were once on the list, but were dropped in subsequent periods.
Here are the results for the total return from Feb 2006 to Feb 2012:
Wow, not too bad. The baseline portfolio of high employee satisfaction firms outperformed the S&P 500.
Here are the list of tickers for the 2011 portfolio to give you a flavor for the type of names in the book.
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Definitions of common statistics used in our analysis are available here (towards the bottom)