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International Evidence on Ethical Mutual Fund Performance and Investment Style

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