Socially conscious investment funds and home country institutions

Gary A. Hoover and K. Smimou

Economic Analysis and Policy, 2023, vol. 79, issue C, 395-417

Abstract: We delve into performance and riskiness of socially conscious (SC) investment funds while considering the salient role of home country institutions as proxied by freedom indicators – namely, economic freedom with its five underlying component areas – in addition to the personal and overall human freedom of countries/regions as related to the home base currency of those funds. From a global perspective and including nonlinear considerations, evidence shows that advances in economic freedom and its constituent areas, as well as differences in personal freedom, have a consistent sizeable positive impact on the performance of SC funds but also a slight positive effect on their riskiness, attested to by various robustness tests. We articulate the added financial benefits to be gained when both socially responsible features and freedom infrastructure are present, confirming that freedom indicators matter. There is subtle evidence that changes in legal structure and security of property rights, as well as sound money, show a statistically and economically significant positive effect on performance across various specifications. In accord with widespread support for the importance of private property and the rule of law, this study shows that without sound money, a functioning legal system, and entrenched property rights, the performance of SC funds is stalled.

Keywords: Institutions; Home country institutions; Economic freedom; International finance; Property rights; Rule of law; Economic growth; Socially responsible investing; Mutual funds; Portfolio selection; Sustainable investment; Green stocks (search for similar items in EconPapers)
JEL-codes: C11 F3 F42 G10 G11 G12 G14 G15 G23 G31 O1 O47 P51 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:79:y:2023:i:c:p:395-417

DOI: 10.1016/j.eap.2023.06.008

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