Investing in Mutual Funds: Does it Pay to Be a Sinner or a Saint in Times of Crisis?

22 Pages Posted: 14 Sep 2010

See all articles by Nelson Areal

Nelson Areal

University of Minho - School of Economics and Management

Maria C. Cortez

University of Minho - School of Economics and Management

Florinda Silva

University of Minho - School of Economics and Management

Date Written: September 13, 2010

Abstract

We investigate the performance of US socially responsible funds that employ different stock selection criteria: religious, social and ‘irresponsible’ criteria. Performance is evaluated over different market regimes using a Markov-switching conditional CAPM model that defines different states of the market endogenously. The ‘irresponsible’ fund outperforms in low volatility regimes, but underperforms in high volatility regimes. Furthermore, the risk of the ‘irresponsible’ fund is higher in low volatility regimes and lower in high volatility regimes. Socially responsible funds do not adjust risk according to market conditions. These findings suggest that socially responsible companies might provide better investments during periods of crisis.

Keywords: financial crisis, market regimes, performance evaluation, socially responsible investing, vice fund

JEL Classification: G11, G12

Suggested Citation

Brandão da Costa Areal, Nelson Manuel de Pinho and Ceu Cortez, Maria and Silva, Florinda, Investing in Mutual Funds: Does it Pay to Be a Sinner or a Saint in Times of Crisis? (September 13, 2010). Available at SSRN: https://ssrn.com/abstract=1676391 or http://dx.doi.org/10.2139/ssrn.1676391

Nelson Manuel de Pinho Brandão da Costa Areal (Contact Author)

University of Minho - School of Economics and Management ( email )

University of Minho
School of Economics and Management
Braga, 4710-057
Portugal
+351 253 601 380 (Fax)

HOME PAGE: http://nelsonareal.net

Maria Ceu Cortez

University of Minho - School of Economics and Management ( email )

Campus Gualtar
Braga, 4710-057
Portugal

Florinda Silva

University of Minho - School of Economics and Management ( email )

Campus Gualtar
Braga, 4710-057
Portugal
351 253 604564 (Phone)
351 253 601380 (Fax)

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