Socially Responsible and Conventional Investment Funds: Performance Comparison and the Global Financial Crisis

Abstract

We investigate the performance of Socially Responsible Funds (SRFs) and Conventional Funds (CFs) in different market segments during the 1992-2012 period. From an unbalanced sample of more that 22,000 funds, we define a matched sample using a beta-distance measure to match any SRF with the "nearest neighbor" CF in terms of risk factors. Using this novel matching approach and a recursive analysis, we identify several switch points in the lead/lag relationship between the two investment styles over time in different market segments (geographical area and size). A relevant finding of our analysis is that SRFs played an "insurance role" outperforming CFs during the 2007 global financial crisis.

Performance of European socially responsible funds during market crises: Evidence from France

“…The only contributions we are aware of are the studies of Muñoz, Vargas, and Marco (2014) and Becchetti, Ciciretti, Dalò, and Herzel (2015). Muñoz et al (2014) focus on environmental/green mutual funds, which are a very specific subset of SRI funds.…”

“…Therefore, they do not compare the performance of typical European SRI funds with that of conventional funds across different market states. Becchetti et al (2015) compare the performance of SRI and conventional funds from several markets in the Morningstar investment funds universe. Their results show that SRI funds played an insurance role during the 2007 global financial crisis, 2 Another important aspect to mention is that France was the first European country to make ethical reporting mandatory.…”

Are Ethical and Social Banks Less Risky? Evidence from a New Dataset

“…This pre-matching is implemented only to 13 obtain an appropriate and less heterogeneous control group, not to obtain treatment effects that could be interpreted causally. Similar matching approaches are also used in the Islamic banking literature (Bourkhis and Nabi, 2013) and in the evaluation of socially responsible investment funds (Becchetti et al, 2014).…”

The performance of socially responsible equity mutual funds: Evidence from Sweden

“…Nofsinger and Varma (2014) also focus on the U.S. market and find that SR funds outperform conventional funds during crisis periods and underperform during non-crisis periods. Becchetti, Ciciretti, Dal o, and Herzel (2015) analyze SR funds worldwide and document that they played an insurance role during the international financial crisis. Muñoz et al (2014) compare the performance of green funds during crisis and non-crisis periods and find that American green fund managers exhibit better managerial abilities in periods of crisis whereas the opposite is observed for European green fund managers.…”