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Fund performance and social responsibility: New evidence using social active share and social tracking error

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  • Ghoul, Sadok El
  • Karoui, Aymen

Abstract

Using a sample of 2,516 U.S. mutual funds over the 2010–2017 period, we examine the effects of socially responsible investing (SRI) on mutual fund performance. We use two proxies for deviations from SRI: social active share (SAS), and social tracking error (STE). Respectively, they capture the differences in holdings and returns between a fund and a socially responsible index, the MSCI KLD 400. In univariate analyses, the SAS results align with more socially responsible funds outperforming less socially responsible funds, while the STE results provide mixed evidence. In multivariate analyses, both SAS and STE show that more socially responsible funds outperform their less socially responsible peers. We also find that socially responsible funds exhibit lower risk. Taken together, our results provide evidence that SRI does not damage fund performance but can reduce fund risk.

Suggested Citation

  • Ghoul, Sadok El & Karoui, Aymen, 2022. "Fund performance and social responsibility: New evidence using social active share and social tracking error," Journal of Banking & Finance, Elsevier, vol. 143(C).
    • Handle: RePEc:eee:jbfina:v:143:y:2022:i:c:s0378426622001947
    DOI: 10.1016/j.jbankfin.2022.106598
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    More about this item

    Keywords

    Mutual fund performance; Socially responsible investing; Active share; Environmental; social; and governance (ESG); Corporate social responsibility (CSR); Sustainable investing;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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