Can Hedge Funds Benefit from CSR Investment?

33 Pages Posted: 14 Jun 2019

See all articles by Jun Duanmu

Jun Duanmu

Louisiana Tech University - Department of Economics and Finance

Qiping Huang

Boise State University - College of Business & Economics

Yongjia Li

Boise State University - College of Business and Economics, Department of Finance

Garrett McBrayer

Boise State University

Date Written: April 30, 2019

Abstract

We explore the extent to which hedge funds incorporate corporate social responsibility (CSR) considerations in the development of their investment strategies. Using an asset-weighted composite measure of CSR by fund, we examine the difference in financial performance between hedge funds with high CSR investment relative to those with low investment and document no statistical difference. Yet, we find that hedge funds increase their exposure to high CSR investments over our sample period, specifically post-financial crisis. We find that the increases in CSR investment are consistent with hedge funds utilizing CSR strategies as a form of risk mitigation. Specifically, hedge funds with higher weighted CSR scores exhibit significantly lower risk factor loadings than funds with lower weighted CSR scores. Our results suggest that hedge funds are able to derive benefits by using CSR considerations as a form of risk-mitigation in their investment policies.

Keywords: Hedge funds, Corporate social responsibility, Risk taking

JEL Classification: G11, G23

Suggested Citation

Duanmu, Jun and Huang, Qiping and Li, Yongjia and McBrayer, Garrett, Can Hedge Funds Benefit from CSR Investment? (April 30, 2019). Available at SSRN: https://ssrn.com/abstract=3380623 or http://dx.doi.org/10.2139/ssrn.3380623

Jun Duanmu

Louisiana Tech University - Department of Economics and Finance ( email )

Ruston, LA 71272
United States

Qiping Huang (Contact Author)

Boise State University - College of Business & Economics ( email )

United States

Yongjia Li

Boise State University - College of Business and Economics, Department of Finance ( email )

1910 University Drive
Boise, ID 83716
United States

Garrett McBrayer

Boise State University ( email )

1910 University Drive
Boise, ID Idaho 83716
United States
2084262713 (Phone)

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