Go Green with Socially Responsible Investing?

Abstract

This paper re-visits the important question: How well do socially responsible investing (“SRI”) mutual funds perform compared to conventional funds. In this study, I use a quasi-experiment setting to evaluate SRI performance during the financial crisis. I find that SRI funds earn worse crisis-period returns than conventional funds. The results are inconsistent with earlier evidence that high CSR firms earn superior crisis-period stock returns than low CSR firms. I explain this by longer investor horizon and more prosocial clientele of SRI funds. SRI funds on average have longer investor horizon, and fund flows of SRIs are less sensitive to past returns compared to conventional funds. Lastly, SRIs’ poor crisis period returns do not seem to persist over the longer term. The results are of importance to both academic and other research communities, particularly relevant to individual investors who are socially-conscious and interested in investing in SRIs.

Keywords: CSR, SRI, socially-conscious investor, financial crisis, relative performance