Socially Responsible Investment Fund Performance: The Impact of Screening Intensity

20 Pages Posted: 4 Jun 2010

See all articles by Darren Lee

Darren Lee

Charles Sturt University - Faculty of Business, Justice and Behavioural Sciences

Jacquelyn Humphrey

University of Queensland - Business School

Karen L. Benson

University of Queensland - Business School; Financial Research Network (FIRN)

Jason Ahn

affiliation not provided to SSRN

Abstract

Perhaps the most common criticism of socially responsible investment funds is that imposing non-financial screens restricts investment opportunities, reduces diversification efficiencies and thereby adversely impacts performance. In this study we investigate this proposition and test whether the number of screens employed has a linear or curvilinear relation with return. Moreover, we analyse the link between screening intensity and risk. Screening intensity has no effect on unadjusted (raw) returns or idiosyncratic risk. However, we find a significant reduction in α of 70 basis points per screen using the Carhart performance model. Increased screening results in lower systematic risk – in line with managers choosing lower β stocks to minimize overall risk.

Suggested Citation

Lee, Darren and Humphrey, Jacquelyn and Benson, Karen L. and Ahn, Jason, Socially Responsible Investment Fund Performance: The Impact of Screening Intensity. Accounting & Finance, Vol. 50, Issue 2, pp. 351-370, June 2010, Available at SSRN: https://ssrn.com/abstract=1615758 or http://dx.doi.org/10.1111/j.1467-629X.2009.00336.x

Darren Lee

Charles Sturt University - Faculty of Business, Justice and Behavioural Sciences ( email )

Panorama Avenue
Bathurst, NSW 2678
Australia

Jacquelyn Humphrey

University of Queensland - Business School ( email )

4072 Brisbane Queensland
Australia

Karen L. Benson

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Jason Ahn

affiliation not provided to SSRN

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