Are European Socially Responsible Mutual Funds Rewarding and Profitable?

34 Pages Posted: 27 Jun 2013

See all articles by Cristiana Torres

Cristiana Torres

Universidade do Porto - Faculdade de Economia (FEP)

António Cerqueira

Universidade do Porto - Faculdade de Economia (FEP)

Elisio Brandao

Universidade do Porto - Faculdade de Economia (FEP)

Date Written: June 4, 2013

Abstract

The last two decades have shown us the growing importance of corporate, social and governance programs, as executives, investors and regulators have become increasingly aware of these programs’ potential to mitigate corporate crises and build solid social reputation. Thus, mutual funds that invest according to social, environmental and ethical criteria have increased both in volume and value. This paper investigates the performance of a sample of 80 socially responsible mutual funds from 8 European countries, within the period from 2002 to 2010. Using both the mainstream unconditional model and the most recent conditional models, we address a performance comparison between these funds and unscreened benchmark Indices as well as socially responsible benchmark Indices. We then attest the models results by applying the classical Sharpe Ratio to our Funds sample. We find out that European socially responsible mutual funds present, in general, neutral performance when compared with both benchmark portfolios. Furthermore, performance estimates seem to be slightly higher when funds are analyzed in relation to socially responsible indices and this benchmark has higher explaining power. Conditional models also seem to lead to a slight uplift of performance estimates and of explanatory capacity of the models applied. Sharpe Ratio confirms that there is no significant performance difference between the compared elements. This is consistent with most precedent empirical findings on this issue. Our study reveals that investors can adhibit social screens to their investment choices without pledging their financial returns, contrary to portfolio theory predictions. This paper proves that it is possible to “do well (financially) while doing good (socially)”.

Keywords: Socially Responsible Investing, Socially Responsible Mutual Funds

JEL Classification: G11, G12, M14

Suggested Citation

Torres, Cristiana and Cerqueira, António and Brandão, Elísio Fernando Moreira, Are European Socially Responsible Mutual Funds Rewarding and Profitable? (June 4, 2013). Available at SSRN: https://ssrn.com/abstract=2274225 or http://dx.doi.org/10.2139/ssrn.2274225

Cristiana Torres

Universidade do Porto - Faculdade de Economia (FEP) ( email )

Porto
Portugal

António Cerqueira

Universidade do Porto - Faculdade de Economia (FEP) ( email )

Rua Roberto Frias
s/n
Porto, 4200-464
Portugal

Elísio Fernando Moreira Brandão (Contact Author)

Universidade do Porto - Faculdade de Economia (FEP) ( email )

Rua Roberto Frias
s/n
Porto, 4200-464
Portugal

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