Fund flows and performance: New evidence from retail and institutional SRI mutual funds |
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| Institution: | 1. School of Finance, Zhejiang Gongshang University, Hangzhou 310018, Zhejiang, China;2. School of Finance, Southwestern University of Finance and Economics, Chengdu 611130, Sicuan, China;1. Department of Accounting and Finance, United Arab Emirates University, Al Ain, United Arab Emirates;2. Department of Finance and Investment, College of Economics and Administrative Sciences, Imam Mohammad Ibn Saud Islamic University (IMSIU), Riyadh, Saudi Arabia;3. University of Sfax, Higher Institute of Business Administration, Tunisia;4. Department of Management and Engineering, Linköping University, 581 83 Linköping, Sweden;5. Business School, Hunan University, Changsha 410082, PR China;1. School of Business, Pusan National University, Busan 46241, Republic of Korea;2. College of Social Science, Hansung University, Seoul 02876, Republic of Korea;3. College of Business Administration, University of Seoul, Seoul 02504, Republic of Korea;1. Audencia Business School, Research Center: Markets Technology and Society, 8 Route de la Joneliere, 44312 Cedex 3, Nantes, France;2. Heriot Watt University, Accounting, Economics and Finance SEEC, CFI, Edinburgh, Scotland EH14 4AS, UK;1. School of Accounting, Government Accounting Research Institute, Zhongnan University of Economics and Law, China;2. School of Banking & Finance, University of International Business and Economics, China;3. School of Economics, Huazhong University of Science and Technology, China;4. Research Center for Contemporary Economics, Huazhong University of Science and Technology, China |
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| Abstract: | In this paper we provide a comprehensive analysis of the performance of US SRI mutual funds as well as its relation to the flow of new money that those funds experience in the context of investors sophistication. In particular, we compare the performance of SRI funds with their conventional peers, matched by both managers and characteristics criteria, using several performance measures. We investigate the role of investors sophistication and its influence on the flow-performance and performance-flow relations within the retail and institutional SRI fund shareclasses. For the analysis of the flow-performance relation we use portfolio approach along with monotonic relation test, while the shape of the flow-performance relation is studied using piecewise linear panel regressions. For the performance-flow relation, the flow and unexpected flow portfolios are formed and their risk-adjusted performance is evaluated. We find that SRI mutual fund sector earns positive abnormal returns before expenses and retail SRI funds outperform their institutional peers both, before and after fees. No differences in performance when we consider SRI and conventional funds run by the same management companies. Moreover, we find a positive flow-performance relation which is convex for retail SRI funds but no convexity is found for the institutional ones. We cannot confirm the smart money effect for retail SRI funds, instead we find a dumb money effect for SRI institutional funds. Our paper provides new insights into the role of the investors sophistication for those relations in the presence of sustainability preferences. |
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| Keywords: | SRI investment Retail funds Institutional funds Flow-performance relation Smart money Dumb money |
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