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International Evidence on Ethical Mutual Fund Performance and Investment Style

Rob Bauer
Maastricht University

Rogér Otten
Maastricht University

Kees C. G. Koedijk
Tilburg University - Department of Finance

March 7, 2002

LIFE Working Paper No. 02.59

Abstract:
Using an international database containing 103 German, UK and US ethical mutual funds we review and extend previous research on ethical mutual fund performance. By applying a multi-factor Carhart (1997) model we solve the benchmark problem most prior ethical studies suffered from. After controlling for investment style, we find little evidence of significant differences in risk-adjusted returns between ethical and conventional funds for the 1990-2001 period. Introducing time-variation in betas however leads to a significant under-performance of domestic US funds and a significant out-performance of UK ethical funds, relative to their conventional peers. Finally, we differentiate previous results by documenting a learning effect. After a period of strong under-performance, older ethical funds finally are catching up, while younger funds continue to under-perform both the index and conventional peers.

Keywords: Mutual Funds, Performance evaluation, Style Analysis, Ethical Investments,

JEL Classifications: G12, G20, G23

Working Paper Series

Date posted: January 22, 2002 ; Last revised: August 27, 2002

Suggested Citation

Otten, Rogér, Bauer, Rob and Koedijk, Kees C. G., International Evidence on Ethical Mutual Fund Performance and Investment Style (March 7, 2002). LIFE Working Paper No. 02.59. Available at SSRN: http://ssrn.com/abstract=297882 or doi:10.2139/ssrn.297882

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Contact Information

Rogér Otten (Contact Author) Maastricht University ( email ) P.O. Box 616 Maastricht 6200 MD Netherlands +31 43 388 3838 (Phone) +31 43 388 4875 (Fax) HOME PAGE: http://www.fdewb.unimaas.nl/finance/faculty/Otten
Rob Bauer Maastricht University ( email ) P.O. Box 616 6200 MD Maastricht Netherlands +31 43 3883871 (Phone)
Kees G. Koedijk Tilburg University - Department of Finance ( email ) P.O. Box 90153 5000 LE Tilburg Netherlands +31 13 4663048 (Phone) +31 13 4662052 (Fax)