Social Responsibility in the Time of Uncertainty: A Natural Experiment

50 Pages Posted: 1 Feb 2021

See all articles by Ola Mahmoud

Ola Mahmoud

University of Basel; University of California, Berkeley

Julia Meyer

University of Zurich - Department of Banking and Finance; ZHAW School of Management and Law

Date Written: January 28, 2021

Abstract

This paper studies social responsibility in the financial market under uncertainty. Using the COVID-19 induced stock market crash as a natural experiment, we present causal evidence for a significant market-wide increase in sentiment for and attention to socially responsible investments. An artefactual field experiment suggests three behavioral channels for this shift in preferences. First, investors view socially responsible assets as less risky and uncertain. Second, the crisis triggered an increase in prosocial preferences in general. Third, the affect heuristic, in which the emotional response acts as a mental shortcut in relation to a stimulus, triggers favorable expectations of socially responsible investment performance. Our insights provide evidence for the time varying nature of morality in the market, and may explain the recently documented resilience of socially responsible stocks in times of market turmoil.

Keywords: social responsibility, investor sentiment, uncertainty, market crash, social preferences, risk aversion, ambiguity aversion, affect heuristic

JEL Classification: G41, G11, D81, D91, M14

Suggested Citation

Mahmoud, Ola and Meyer, Julia, Social Responsibility in the Time of Uncertainty: A Natural Experiment (January 28, 2021). Available at SSRN: https://ssrn.com/abstract=3774995

Ola Mahmoud (Contact Author)

University of Basel ( email )

Petersplatz 1
Basel, CH-4003
Switzerland

University of California, Berkeley ( email )

Center for Risk Management Research
Evans Hall
Berkeley, CA 94720
United States

Julia Meyer

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 30/32
Zürich, 8032
Switzerland

ZHAW School of Management and Law ( email )

St.-Georgen-Platz 2
Winterthur, 8401
Switzerland

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