Asymmetric Impact of Active Management on the Performance of ESG Funds

Barbara Abou Tanos (), Omar Farooq, Mohammed Bouaddi and Neveen Ahmed
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Barbara Abou Tanos: Suliman S. Olayan School of Business, American University of Beirut, Riad El Solh, Beirut 110236, Lebanon
Omar Farooq: ADA School of Business, ADA University, Ahmadbey Aghaoglu Street 61, Baku 1008, Azerbaijan
Mohammed Bouaddi: Mohamed Shafik Gabr Department of Economics, American University of Cairo, AUC Ave, New Cairo 11835, Egypt
Neveen Ahmed: Suliman S. Olayan School of Business, American University of Beirut, Riad El Solh, Beirut 110236, Lebanon

JRFM, 2024, vol. 17, issue 9, 1-15

Abstract: This paper investigates the asymmetric impact of fund active management style on the performance of ESG funds. Unlike conventional measures of synchronicity, we propose new measures that capture the asymmetric patterns in a fund’s management style in upside and downside market conditions. Our data includes 170 equity funds that are identified as socially responsible, with a period spanning from 2010 to 2022. Our proposed methodology allows us to capture the asymmetric patterns in the fund management styles under different market conditions while mitigating the challenge of outliers, which is crucial when assessing funds’ active management activities. We find that while ESG funds promote sustainability, their active management is only beneficial during periods of market downturns. Our results are robust after controlling for different funds characteristics, for several active management proxies, and across various model specifications. This paper thus provides crucial guidelines for fund managers since it shows that their success is greatly influenced by their time-varying skills and management style in changing market conditions. Our findings incentivize ESG fund managers to pursue information acquisition activities during market downturns, as these activities improve market informational efficiency while aligning with their sustainability goals.

Keywords: mutual funds; performance; active management; environmental, social, governance (ESG) (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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