Socially Responsible Funds and Market Crises
47 Pages Posted: 6 Sep 2012 Last revised: 6 Aug 2014
Date Written: September 6, 2012
Compared to conventional mutual funds, socially responsible mutual funds outperform during periods of market crisis. This dampening of downside risk comes at the cost of under performing during non-crisis periods. Investors with Prospect Theory utility functions would value the skewness of these returns. This asymmetric return pattern is driven by the mutual funds that focus on environmental, social, or governance (ESG) attributes and is especially pronounced in ESG funds that use positive screening techniques. Furthermore, the observed patterns are attributed to the socially responsible attributes and not the differences in fund management or the characteristics of the companies in fund portfolios.
Keywords: SRI, ESG, socially responsible, prospect theory
JEL Classification: G01, G20, M14
Suggested Citation: Suggested Citation