Socially Responsible Funds and Market Crises

47 Pages Posted: 6 Sep 2012 Last revised: 6 Aug 2014

See all articles by Abhishek Varma

Abhishek Varma

Illinois State University

John R. Nofsinger

University of Alaska Anchorage

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

Varma, Abhishek and Nofsinger, John R., Socially Responsible Funds and Market Crises (September 6, 2012). Journal of Banking and Finance, Forthcoming. Available at SSRN: or

Abhishek Varma (Contact Author)

Illinois State University ( email )

Normal, IL 61790
United States
309-438-5658 (Phone)


John R. Nofsinger

University of Alaska Anchorage ( email )

3211 Providence Drive
Anchorage, AK 99508
United States


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