Process-Oriented Social Responsibility Indicator for Mutual Funds: A Multi-Criteria Decision Analysis Approach

International Journal of Multi-Criteria Decision Making, 6(1), 66-99 (2016)

33 Pages Posted: 29 Jan 2014 Last revised: 22 Jun 2016

See all articles by Tim Verheyden

Tim Verheyden

Arabesque Partners; Vrije Universiteit Brussel - Faculty of Economic and Social Sciences and Solvay Business School

Lieven De Moor

Vrije Universiteit Brussel

Date Written: 2016

Abstract

In recent years, socially responsible investing (SRI) has grown from a niche to a mainstream investment strategy. Consequently, the supply of SRI mutual funds expanded and a discussion on the performance of SRI funds developed. The traditional approach to measuring mutual fund performance does not take into account possible heterogeneity with respect to social responsibility and focuses on a dichotomous SRI versus non-SRI typology. We consider multi-criteria decision analysis (MCDA) to build an indicator to capture the multi-faceted nature of SRI and to help control for differences in process-oriented social responsibility. From the wide variety of established MCDA methods, we determine and implement four eligible techniques. Considering extensive robustness analysis and additional criteria, we find the PROMETHEE methodology to be most recommended for both academic and professional applications. The obtained scores and rankings prove to be highly robust and are in line with generally accepted intuition in the industry. The proposed PROMETHEE-based indicator is also easy to understand and implement, which makes it highly suited for implementation in mutual fund performance research (academic application). The available range of sensitivity analyses in the PROMETHEE technique is also instrumental to help fund managers optimize the design of new mutual funds with respect to social responsibility (professional application).

Keywords: socially responsible investing, ESG, mutual funds, multi-criteria decision analysis

JEL Classification: C44, G10, G11, G12

Suggested Citation

Verheyden, Tim and De Moor, Lieven, Process-Oriented Social Responsibility Indicator for Mutual Funds: A Multi-Criteria Decision Analysis Approach (2016). International Journal of Multi-Criteria Decision Making, 6(1), 66-99 (2016). Available at SSRN: https://ssrn.com/abstract=2386566 or http://dx.doi.org/10.2139/ssrn.2386566

Tim Verheyden (Contact Author)

Arabesque Partners ( email )

43 Grosvenor Street
LONDON, W1K 3HL
United Kingdom
+447878679314 (Phone)

HOME PAGE: http://www.arabesque.com/s-ray

Vrije Universiteit Brussel - Faculty of Economic and Social Sciences and Solvay Business School ( email )

Pleinlaan 2
Brussels, 1050
Belgium

Lieven De Moor

Vrije Universiteit Brussel ( email )

Department of Business
Pleinlaan 2
Brussels, B-1050
Belgium
+32 498 616463 (Phone)

HOME PAGE: http://goo.gl/qntmYg

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