Countercyclical Social Responsibility

Abstract

Are market agents more or less socially responsible in times of heightened uncertainty? Using the initial wave of the COVID-19 pandemic as a natural experiment, we provide evidence for an increase in social responsibility in the financial market and propose risk preferences as a behavioral driver. Two experiments conducted before and during the pandemic suggest an increase in the average allocation to a standard public good; a shift towards socially responsible investment decisions; and a significant association between risk aversion and social responsibility. Financial market proxies for investor sentiment for social responsibility corroborate our evidence for countercyclical social responsibility.

Keywords: countercyclical social responsibility, socially responsible markets, pandemic, risk aversion, ambiguity aversion

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