Question $9$

We maximize the Sharpe ratio of our portfolio including an ESG constraint such that the ESG rating of our portfolio has to be higher than a certain ESG level, so as to allocate more weight to more sustainable assets. In sample, what happens to this Sharpe ratio compared to the baseline model when we maximize the Sharpe ratio without any ESG constraint?

A$.$ Cannot tell without the impact of ESG on stock returns

B$.$ The sharpe ratio increases

C$.$ Cannot tell for other reasons not mentioned

D$.$ The sharpe ratio does not change

E$.$ The sharte ratio decreases