Sustainability Preferences Under Stress: Evidence from Mutual Fund Flows During COVID-19

85 Pages Posted: 21 Jul 2020 Last revised: 23 May 2022

See all articles by Robin Döttling

Robin Döttling

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM)

Sehoon Kim

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: May 23, 2022

Abstract

We document fragile demand for socially responsible investments (SRI) by retail mutual fund investors. Using COVID-19 as an economic shock, we show funds with higher sustainability ratings experienced sharper declines in retail flows during the pandemic, controlling for fund characteristics. The decline in retail SRI fund flows is sharper than that of institutional flows, more pronounced when economies are hit harder by COVID-19, and unlikely to be driven by fund performance, past flows and size, or shifting investor attention. Corroborated by out-of-sample survey evidence, our findings highlight high sensitivity of SRI demand by retail investors with respect to income shocks.

Keywords: Socially Responsible Investing, Sustainable Investing, Retail Investors, Mutual Fund Flows, COVID-19, SRI, ESG

JEL Classification: D62, G11, G14, G23, G41, I10, M14

Suggested Citation

Döttling, Robin and Kim, Sehoon, Sustainability Preferences Under Stress: Evidence from Mutual Fund Flows During COVID-19 (May 23, 2022). Available at SSRN: https://ssrn.com/abstract=3656756 or http://dx.doi.org/10.2139/ssrn.3656756

Robin Döttling

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-46
3000 DR Rotterdam, 3000 DR
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Sehoon Kim (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

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