Does socially responsible mutual fund performance vary over the business cycle? New insights on the role of ethical strategy focus and green industry idiosyncratic risk

Juan Carlos Matallín-Sáez (), Amparo Soler-Domínguez () and Emili Tortosa-Ausina
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Juan Carlos Matallín-Sáez: Department of Finance & Accounting, Universitat Jaume I, Castellón, Spain
Amparo Soler-Domínguez: Department of Finance & Accounting, Universitat Jaume I, Castellón, Spain

No 2016/03, Working Papers from Economics Department, Universitat Jaume I, Castellón (Spain)

Abstract: This paper analyses the performance of US social responsible (SR) mutual funds in relation to the fund’s ethical strategy focus and whether the business cycle is in a state of expansion or recession. Our results show that in aggregated terms the abnormal performance of SR funds is negative and there are no significant differences based on their ethical strategy focus: environmental, ESG, religious and undefined. In general we also find no significant differences in performance according the state of the business cycle. In terms of methodology our analysis shows the relevance of considering a benchmark to cover idiosyncratic risks linked to the asset classes in which the fund invests according to its ethical commitments. This effect is especially relevant in the case of environmental funds due to the poor performance of the renewable energy industry since the 2008 financial crisis as a result of changes in green government policy and lower oil prices. Thus, part of the mutual fund performance will not be linked to managers but rather to the behaviour of these asset classes.

Keywords: Mutual fund; performance; business cycle; environmental; ESG; SRI (search for similar items in EconPapers)
JEL-codes: G11 G23 M14 Q56 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2016
New Economics Papers: this item is included in nep-bec, nep-env, nep-fmk and nep-mac
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