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Sustainable Funds’ Performance Evaluation

Xiaoguang Yue (), Yan Han (), Deimante Teresiene (), Justina Merkyte () and Wei Liu ()
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Yan Han: School of Humanities and Social Science, Beijing Institute of Technology, Beijing 100081, China
Justina Merkyte: Finance Department, Faculty of Economics and Business Administration, Vilnius University, LT-10223 Vilnius, Lithuania
Wei Liu: Business School, Qingdao University, Qingdao 266100, China

Sustainability, 2020, vol. 12, issue 19, 1-20

Abstract: The purpose of this research is to consider if the growing popularity of sustainable investment does not create additional risks in investing. Different views on sustainable investments were analyzed to identify different approaches to the main risks. A quantitative analysis was carried out to investigate the possible benefits and advantages of sustainable investment. Without taking into account the social perks of investing in sustainable funds, this study evaluates the performance and economic returns of both sustainable and traditional funds. The research was carried out in two parts by comparing samples of 30 sustainable and 30 traditional funds. Firstly, such methods as annual returns, standard deviations, Sharpe ratios, skewness, and kurtosis were calculated and analyzed. The Capital Asset Pricing Model (CAPM), Fama–French three-factor model and Carhart four-factor model were used to value different market portfolios. The findings of this study suggest that sustainable funds are less risky than traditional funds. However, at the same time, we want to point to pay attention to the period of our analysis and to have in mind that an increasing demand of social responsible assets increases risks as well. However, no clear evidence was found to confirm that sustainable funds can generate higher returns compared to traditional piers or benchmark index. Moreover, after studying different methods the study reveals that the Fama–French three-factor model was the most suitable for explaining the traditional and sustainable funds’ results.

Keywords: sustainable funds; traditional funds; sustainable investment; Fama–French three-factor model; returns (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
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