Is Ethical Money Financially Smart?
AbstractLittle is known about how investors select socially responsible investment (SRI) funds.Investors in SRI funds may care more about social or ethical issues in their investment decisions than about fund performance.This paper studies the money-flows into and out of the SRI funds around the world.We find that ethical money chases past returns.In contrast to conventional funds' investors, SRI investors care less about the funds' riskiness and fees.Funds characterized by shareholder activism and by in-house SRI research attract more stable investors. Membership of a large SRI fund family creates higher flow volatility due to the lower fees to reallocate money within the fund family.SRI funds receiving most of the money-inflows perform worse in the future, which is consistent with theories of decreasing returns to scale in the mutual fund industry.Finally, funds employing a higher number of SRI screens to model their investment universe receive larger money-inflows and perform better in the future than focused funds.
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2006-9.
Date of creation: 2006
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Web page: http://center.uvt.nl
money-flows; ethical funds; socially responsible investing; persistence in performance; investment screens; corporate governance screens; SRI;
Other versions of this item:
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G19 - Financial Economics - - General Financial Markets - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-05 (All new papers)
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