The investment performance, attributes, and investment behavior of ethical equity mutual funds in the US: an empirical investigation

Shafiqur Rahman (), Cheng Few Lee and Yaqing Xiao
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Shafiqur Rahman: Rubicon Global Advisors
Yaqing Xiao: Rutgers University

Review of Quantitative Finance and Accounting, 2017, vol. 49, issue 1, No 4, 116 pages

Abstract: Abstract This paper examines the investment performance of US ethical equity mutual funds relative to the market and their traditional counterparts using a survivorship-bias-free database. We detect selectivity and market timing performance of fund managers using two models. First, we use Treynor and Mazuy’s (Harv Bus Rev 44:131–136, 1966) model to determine these performances from a quadratic regression of fund returns on market returns. Second, we use a comprehensive and integrated model derived by Bhattacharya and Pfleiderer (A note on performance evaluation. Technical Report 714, Stanford, California, Stanford University, Graduate School of Business, 1983) and Lee and Rahman (J Bus 63:261–278, 1990) to simultaneously capture stock selection and market timing skill of fund managers. This model extracts timing skill from the relationship between managers’ forecast and realized market return. In addition, the R2 approach developed by Amihud and Goyenko (Rev Financ Stud 26:667–694, 2013) for evaluating selectivity is also used in this paper. Our empirical results indicate that ethical funds perform no worse than their traditional counterparts, although ethical and traditional funds do not outperform the market. We find some evidence of superior security selection and/or market timing skill among a very small number of ethical and traditional funds. It appears that matching traditional funds have slightly more abnormal (superior as well as inferior) performance than ethical funds in our sample.

Keywords: Ethical investment; Socially responsible investment (SRI); Stock screening; Portfolio management; Performance evaluation (search for similar items in EconPapers)
JEL-codes: A13 G11 G12 G20 G23 M14 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s11156-016-0581-1

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