Mutual Fund Trading and ESG Stock Resilience during the COVID-19 Stock Market Crash

Abstract

Using proprietary monthly holdings data from Morningstar, we show that Envi- ronmental, Social, and Governance funds’ trading during the COVID-19 market crash was consistent with catering to their clientele. Thus, ESG funds helped to stabilize the market for ESG stocks, but interestingly non-ESG funds did that as well. First, all funds experiencing inflows helped to stabilize the market during the crash by increasing net purchases per dollar of inflows. This behavior was more pronounced for ESG funds. Second, non-ESG funds experiencing outflows increased their net sales per dollar of outflow for non-ESG stocks, tilting their portfolios towards ESG stocks.

Keywords: Environmental and social responsibility, clientele effects, fund flows, investor horizon, stock market crash

JEL Classification: G01, G12, G23, G32, M14