Are European Socially Responsible Mutual Funds Rewarding and Profitable?
34 Pages Posted: 27 Jun 2013
Date Written: June 4, 2013
Abstract
The last two decades have shown us the growing importance of corporate, social and governance programs, as executives, investors and regulators have become increasingly aware of these programs’ potential to mitigate corporate crises and build solid social reputation. Thus, mutual funds that invest according to social, environmental and ethical criteria have increased both in volume and value. This paper investigates the performance of a sample of 80 socially responsible mutual funds from 8 European countries, within the period from 2002 to 2010. Using both the mainstream unconditional model and the most recent conditional models, we address a performance comparison between these funds and unscreened benchmark Indices as well as socially responsible benchmark Indices. We then attest the models results by applying the classical Sharpe Ratio to our Funds sample. We find out that European socially responsible mutual funds present, in general, neutral performance when compared with both benchmark portfolios. Furthermore, performance estimates seem to be slightly higher when funds are analyzed in relation to socially responsible indices and this benchmark has higher explaining power. Conditional models also seem to lead to a slight uplift of performance estimates and of explanatory capacity of the models applied. Sharpe Ratio confirms that there is no significant performance difference between the compared elements. This is consistent with most precedent empirical findings on this issue. Our study reveals that investors can adhibit social screens to their investment choices without pledging their financial returns, contrary to portfolio theory predictions. This paper proves that it is possible to “do well (financially) while doing good (socially)”.
Keywords: Socially Responsible Investing, Socially Responsible Mutual Funds
JEL Classification: G11, G12, M14
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
International Evidence on Ethical Mutual Fund Performance and Investment Style
By Rogér Otten, Rob Bauer, ...
-
International Evidence on Ethical Mutual Fund Performance and Investment Style
By Rob Bauer, Kees C. G. Koedijk, ...
-
Investing in Socially Responsible Mutual Funds
By Christopher Geczy, Robert F. Stambaugh, ...
-
The Eco-Efficiency Premium Puzzle
By Jeroen Derwall, Rob Bauer, ...
-
Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices
By Alex Edmans
-
Corporate Social Performance and Stock Returns: UK Evidence from Disaggregate Measures
By Stephen J. Brammer, Chris Brooks, ...