The Many Faces of Socially Responsible Investing - Does the Screening Mechanism Affect the Risk and Return of Mutual Funds?

19 Pages Posted: 22 Aug 2011

See all articles by Jacquelyn Humphrey

Jacquelyn Humphrey

University of Queensland - Business School

David Tan

School of Finance, Actuarial Studies, and Applied Statistics, Australian National University

Date Written: August 21, 2011

Abstract

We investigate whether positive or negative screening impacts the performance and risk of socially responsible mutual funds. We mimic the characteristics of mutual funds and bootstrap firm returns to form portfolios which reflect actual mutual fund holdings. We find positive screening results in increased returns, but also increased total risk and beta. We do not find support for the conjecture that positively screened firms have lower unsystematic risk. Return results from negative screening are not as clear, but we do find that increasing the number of stocks excluded from a portfolio may impede the ability to fully diversify.

Keywords: Socially responsible investing, ethical investing, mutual funds

JEL Classification: G11, M14

Suggested Citation

Humphrey, Jacquelyn and Tan, David, The Many Faces of Socially Responsible Investing - Does the Screening Mechanism Affect the Risk and Return of Mutual Funds? (August 21, 2011). Available at SSRN: https://ssrn.com/abstract=1913987 or http://dx.doi.org/10.2139/ssrn.1913987

Jacquelyn Humphrey (Contact Author)

University of Queensland - Business School ( email )

4072 Brisbane Queensland
Australia

David Tan

School of Finance, Actuarial Studies, and Applied Statistics, Australian National University ( email )

Canberra, Australian Capital Territory 0200
Australia

HOME PAGE: http://cbe.anu.edu.au/staff/info.asp?Surname=Tan&Firstname=David

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