Socially responsible funds and market crises |
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| Institution: | 1. Department of Finance and Management Science, College of Business, Washington State University, Pullman, WA 99164-4746, United States;2. Department of Finance, Insurance and Law, College of Business, Illinois State University, Campus Box 5480, Normal, IL 61790-5480, United States;1. Department of Finance, Waikato Management School, The University of Waikato, Private Bag 3105, Hamilton 3240, New Zealand;2. SP Jain School of Global Management, Dubai Campus, United Arab Emirates;3. Lahore University of Management Sciences, Lahore, Pakistan;4. Waikato Management School, University of Waikato, Hamilton, New Zealand;1. Department of Banking and Finance, Monash University, Clayton, Victoria 3168, Australia;2. School of Business Administration, Kyungpook National University, Sankyuk-dong, Puk-ku, Daegu 702-701, Republic of Korea;3. KAIST College of Business, KAIST, 87 Hoegiro, Dongdaemoon-gu, Seoul 130-722, Republic of Korea;1. Maastricht University, European Centre for Corporate Engagement, P.O. Box 616, 6200 MD Maastricht, The Netherlands;4. Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ, UK;5. Open University in the Netherlands, Faculty of Management, Science & Technology, P.O. Box 2960, 6401 DL Heerlen, The Netherlands |
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| Abstract: | Compared to matched conventional mutual funds, socially responsible mutual funds outperform during periods of market crises. This dampening of downside risk comes at the cost of underperforming during non-crisis periods. Investors seeking downside protection would value the asymmetry of these returns. This asymmetric return pattern is driven by the mutual funds that focus on environmental, social, or governance (ESG) attributes and is especially pronounced in ESG funds that use positive screening techniques. Furthermore, the observed patterns are attributed to the funds’ socially responsible attributes and not the differences in fund portfolio management or the characteristics of the companies in fund portfolios. |
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| Keywords: | SRI ESG Socially responsible Governance Investments Downside risk Prospect theory |
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