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Socially responsible funds and market crises

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  • Nofsinger, John
  • Varma, Abhishek

Abstract

Compared to matched conventional mutual funds, socially responsible mutual funds outperform during periods of market crises. This dampening of downside risk comes at the cost of underperforming during non-crisis periods. Investors seeking downside protection would value the asymmetry of these returns. This asymmetric return pattern is driven by the mutual funds that focus on environmental, social, or governance (ESG) attributes and is especially pronounced in ESG funds that use positive screening techniques. Furthermore, the observed patterns are attributed to the funds’ socially responsible attributes and not the differences in fund portfolio management or the characteristics of the companies in fund portfolios.

Suggested Citation

  • Nofsinger, John & Varma, Abhishek, 2014. "Socially responsible funds and market crises," Journal of Banking & Finance, Elsevier, vol. 48(C), pages 180-193.
  • Handle: RePEc:eee:jbfina:v:48:y:2014:i:c:p:180-193
    DOI: 10.1016/j.jbankfin.2013.12.016
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    More about this item

    Keywords

    SRI; ESG; Socially responsible; Governance; Investments; Downside risk; Prospect theory;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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