Is Ethical Money Financially Smart?
Jenke Ter Horst
Tilburg University - Center for Economic Research (CentER)
University of Warwick - Finance Group
Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)
ECGI - Finance Working Paper No. 117/2006
CentER Discussion Paper No. 2006-09
Little is known about how investors select socially responsible investment (SRI) funds. Investors in SRI funds may care more about social or ethical issues in their investment decisions than about fund performance. This paper studies the money-flows into and out of the SRI funds around the world. We find that ethical money chases past returns. In contrast to conventional funds' investors, SRI investors care less about the funds' riskiness and fees. Funds characterized by shareholder activism and by in-house SRI research attract more stable investors. Membership of a large SRI fund family creates higher flow volatility due to the lower fees to reallocate money within the fund family. SRI funds receiving most of the money-inflows perform worse in the future, which is consistent with theories of decreasing returns to scale in the mutual fund industry. Finally, funds employing a higher number of SRI screens to model their investment universe receive larger money-inflows and perform better in the future than focused funds.
Number of Pages in PDF File: 52
Keywords: money-flows, ethical funds, socially responsible investing, persistence in performance, investment screens, corporate governance screens, SRI
JEL Classification: G10, G19working papers series
Date posted: February 28, 2006
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo6 in 0.688 seconds