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International Evidence on Ethical Mutual Fund Performance and Investment Style

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  • Bauer, Bob
  • Koedijk, Kees
  • Otten, Roger
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    Abstract

    Using an international database containing 103 German, UK and US ethical mutual funds, we review and extend previous research on ethical mutual fund performance. By applying a multi-factor Carhart (1997) model we solve the benchmark problem most prior ethical studies suffered from. After controlling for investment style, we find little evidence of significant differences in risk-adjusted returns between ethical and conventional funds for the 1990-2001 period. Introducing time variation in betas however leads to a significant under-performance of domestic US funds and a significant out-performance of UK ethical funds, relative to their conventional peers. Finally, we differentiate previous results by documenting a learning effect. After a period of strong under-performance, older ethical funds finally are catching up, while younger funds continue to under-perform both the index and conventional peers.

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    Bibliographic Info

    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3452.

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    Date of creation: Jul 2002
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    Handle: RePEc:cpr:ceprdp:3452

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    Keywords: Ethical Mutual Funds; Investment Style;

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    Cited by:
    1. Sanchez, Pablo & Rodriguez, Miguel A. & Ricart, Joan E., 2002. "Inversión socialmente responsable: evolución, tendencias e implicaciones para la dirección de las empresas, La," IESE Research Papers D/464, IESE Business School.
    2. Becchetti, Leonardo & Ciciretti, Rocco & Hasan, Iftekhar & Kobeissi, Nada, 2012. "Corporate social responsibility and shareholder's value," Journal of Business Research, Elsevier, vol. 65(11), pages 1628-1635.
    3. Angeles Fernandez-Izquierdo & Juan Matallin-Saez, 2008. "Performance of Ethical Mutual Funds in Spain: Sacrifice or Premium?," Journal of Business Ethics, Springer, vol. 81(2), pages 247-260, August.
    4. Leonardo Becchetti & Rocco Ciciretti & Iftekhar Hasan, 2007. "Corporate social responsibility and shareholder's value: an event study analysis," Working Paper 2007-06, Federal Reserve Bank of Atlanta.
    5. Leonardo Becchetti, 2012. "Voting with the wallet," International Review of Economics, Springer, vol. 59(3), pages 245-268, September.
    6. Eric Keuleneer, 2006. "Investing in sustainability: Delusions and potential benefits of socially responsible investing," International Review on Public and Nonprofit Marketing, Springer, vol. 3(1), pages 29-48, June.
    7. James Brander, 2006. "The Effect of Ethical Fund Portfolio Inclusion on Executive Compensation," Journal of Business Ethics, Springer, vol. 69(4), pages 317-329, December.
    8. Derwall, J. & Günster, N.K. & Bauer, R. & Koedijk, C.G., 2004. "The Eco-Efficiency Premium Puzzle," ERIM Report Series Research in Management ERS-2004-043-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    9. Stephen Fowler & C. Hope, 2007. "A Critical Review of Sustainable Business Indices and their Impact," Journal of Business Ethics, Springer, vol. 76(3), pages 243-252, December.
    10. Becchetti, Leonardo & Ceniccola, Claudia & Ciciretti, Rocco, 2010. "Stock Market Reaction to the Global Financial Crisis: the Role of Corporate Governance and Product Quality Ratings in the Lehman Brothers' Event," Sustainable Investment and Corporate Governance Working Papers 2010/14, Sustainable Investment Research Platform.
    11. Schröder, Michael, 2003. "Socially Responsible Investments in Germany, Switzerland and the United States: An Analysis of Investment Funds and Indices," ZEW Discussion Papers 03-10, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    12. Leonardo Becchetti & Rocco Ciciretti, 2009. "Corporate social responsibility and stock market performance," Applied Financial Economics, Taylor & Francis Journals, vol. 19(16), pages 1283-1293.
    13. William Martin, 2009. "Socially Responsible Investing: Is Your Fiduciary Duty at Risk?," Journal of Business Ethics, Springer, vol. 90(4), pages 549-560, December.

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