The Green and Brown Performances of Mutual Fund Portfolios

42 Pages Posted: 1 Mar 2021 Last revised: 20 Oct 2022

See all articles by Sadok El Ghoul

Sadok El Ghoul

University of Alberta - Campus Saint-Jean

Aymen Karoui

York University

Saurin Patel

Ivey Business School, Western University

Srikanth Ramani

affiliation not provided to SSRN

Date Written: December 1, 2020

Abstract

The past decade has seen an increasing interest in socially responsible investing (SRI) in the mutual fund industry. Central to this development is whether SRI funds underperform conventional funds. Using a novel approach, we decompose mutual fund portfolios into socially responsible (green) and non-socially responsible (brown) components. We find that, in comparison to the non-socially responsible component, the socially responsible portion exhibits a lower raw return, lower risk-adjusted return, lower Sharpe ratio, and similar degree of performance reversal. The magnitude of this underperformance is, however, relatively small. The results align with SRI having a limited negative impact on fund performance while potentially offering some diversification benefits.

Keywords: Mutual fund performance; Socially responsible investing (SRI); Non-socially responsible investing; Sustainable finance; Environment, Social, and Governance (ESG); Corporate social responsibility (CSR)

JEL Classification: G11, G14, G23

Suggested Citation

El Ghoul, Sadok and Karoui, Aymen and Patel, Saurin and Ramani, Srikanth, The Green and Brown Performances of Mutual Fund Portfolios (December 1, 2020). Available at SSRN: https://ssrn.com/abstract=3766404 or http://dx.doi.org/10.2139/ssrn.3766404

Sadok El Ghoul

University of Alberta - Campus Saint-Jean ( email )

Edmonton, Alberta T6G 2R3
Canada
780-465-8725 (Phone)
780-465-8760 (Fax)

Aymen Karoui (Contact Author)

York University ( email )

2275, avenue Bayview
Toronto, Ontario M4N 3M6
Canada

Saurin Patel

Ivey Business School, Western University ( email )

1255 Western Road
Room 2303
London, Ontario N6G 0N1
Canada
519-661-4195 (Phone)

Srikanth Ramani

affiliation not provided to SSRN

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