PurposeThe purpose of this paper is to compare the financial performance of green and traditional mutual funds in the USA.Design/methodology/approachA total of 131 green mutual funds identified by US SIF, were compared with the averages of all traditional mutual funds in their respective Morningstar categories. Performance measures analyzed included annualized rates of return, expense ratios, and Sharpe ratios, among others. Most data pertained to at least the past three years, while other data pertained to the most recent 5 to 15 years.FindingsThe results demonstrate that green mutual funds have generated lower returns and similar risks compared to traditional mutual funds in their respective Morningstar categories. Green mutual funds have underperformed on a risk‐adjusted basis.Research limitations/implicationsSince there is no formal definition of a green mutual fund, the researcher and investor must make a subjective call in assessing which funds invest “green”. However, at least in this early stage in the history of green investing, green mutual funds have underperformed their peers.Originality/valueResults confirm the limitations of green investing as suggested by various researchers, among them Sharpe, Rudd and Kurtz and DiBartolomeo. Results stand in contrast to Corson and Van Dyck and Statman, among others, which reported no significant underperformance for socially responsible investments.

Do socially responsible funds, as a whole, perform as well as the average of all mutual funds in their respective categories? This paper examines fund characteristics as well as risk and performance measures of all available socially responsible funds (SRFs) in the U.S. mutual fund industry over the last fifteen years. The contribution of this paper is two unique findings. First, although SRFs have had a relative advantage in terms of lower expense ratios, lower annual turnover rates, lower tax cost ratios, and lower risk, SRFs also exhibit lower returns, and two risk-adjusted return measures indicate SRFs have inferior reward-to-risk performance. In particular, domestic stock SRFs have not generated competitive returns relative to conventional funds in the same categories over the past ten to fifteen years. These results contrast those found in the extant SRI literature which suggest socially responsible investing has little or no cost. Second, a finer partitioning by fund type reveals not all SRFs have similar relative performance. SRFs in balanced fund and fixed-income fund categories, especially during the past three years, have performed better than the category averages with lower risk, higher returns, and higher risk-adjusted returns. This suggests the costs of socially responsible investing are not homogenous.

PurposeThis paper aims to show that tax‐motivated early exercise of US employee stock options can be, in principle, rationalized for bullish executives. The paper aims to show empirical evidence consistent with private positive information guiding the timing of the exercises.Design/methodology/approachThe paper uses conventional event study methodology to examine the long‐run relative stock price performance of firms in which executives early exercise and maintain the acquired shares. The long‐run analysis adopts the cumulative abnormal return as well as the buy‐and‐hold methodological approach.FindingsTax‐motivated early exercise may be justified on the grounds that future stock appreciation can be converted to long‐term capital gains if the shares are held for over one year while, should the stock decline, shares can be sold within a year to count for short‐term losses. The empirical results reveal that executives who early exercise and continue to hold a majority of the shares acquired do so before performance in their company stock is significantly better than a benchmark.Practical implicationsInformation‐based early exercise is not a harbinger of poor firm performance, as prior research has suggested. This paper illustrates that private positive information can motivate tax‐based early exercise of employee stock options. Prior research has mostly suggested it cannot. Stock retention upon early exercise indicates the optimism of the exerciser.Originality/valueThe first modeling of an exploitable tax asymmetry upon exercise of US employee stock options. The explicit separation of exercises likely based on positive inside information from those likely based on negative information or other non‐informative reasons.

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Purpose The purpose of this paper is to examine the operating characteristics as well as risk and performance measures of all available self-proclaimed socially responsible funds (hereafter SRFs) in the USA over the ten-year (2007–2016) period. The first research question addressed is: Do SRFs perform as well as the average of all mutual funds in their respective categories? The second research question addressed is: Are SRF expense ratios correlated with fund performance? Design/methodology/approach This study analyzes all socially responsible equity mutual funds, as self-reported to Morningstar. This paper empirically compares operating characteristics and performance measures of SRFs relative to category averages in the US mutual fund industry. Operating characteristics include expense ratios and annual turnover rates. Performance measures include conventional return, risk and risk-adjusted return measures. Findings Although prior research suggests that socially responsible investing (SRI) indexes and SRI-friendly stocks have favorable returns, this study finds that these self-proclaimed SRFs underperform the average of all mutual funds in matched equity categories. However, this study demonstrates that a simple filter based on expense ratios can identify those SRFs that will enable investors to do quite well while doing good. Originality/value The contribution of this paper is twofold. First, the authors report that self-proclaimed SRFs, as a whole, have not generated competitive returns relative to other mutual funds in the same categories over the past ten years. This result contradicts the notion that socially responsible investors do not give up return performance when investing with their conscience. Second, the authors find that those SRFs with expense ratios in the lowest quartile of their respective category have significantly higher risk-adjusted returns and significantly lower turnover than category averages. Thus, by focusing on SRFs with low-expense ratios, socially responsible investors can do quite well while doing good.