Working Papers

Fund Performance and Social Responsibility: New Evidence using Social Active Share and Social Tracking Error

with Sadok El Ghoul (Revise & Resubmit at the Journal of Banking and Finance, 2nd round) Download


Presented at the Financial Management Association Meeting (FMA 2020) and Southern Finance Association Meeting (SFA 2020)

We examine the effects of socially responsible investing (SRI) on mutual fund performance. We use two proxies of deviation from SRI: social active share (SAS) and social tracking error (STE) which, respectively, capture the differences in holdings and returns between a fund and a socially responsible index, namely the MSCI KLD 400. Using a sample of 2516 U.S. mutual funds over the period 2010-2017, our univariate analysis shows that less socially responsible funds do not outperform more socially responsible funds. The multivariate analysis shows, however, some evidence that more socially responsible funds display higher risk-adjusted performance than their less socially responsible peers. Our results are consistent with the hypothesis that SRI does not significantly damage fund performance.

The Green and Brown Performances of Mutual Fund Portfolios

with Sadok El Ghoul, Saurin Patel, and Srikanth Ramani (Submitted) Download

Presented at the SFG2021 - Sustainable Finance and Governance workshop

A huge interest has emerged, in the mutual fund industry, in socially responsible investing (SRI). Central to this development is whether SRI funds underperform conventional funds. Using a novel approach, we decompose mutual fund portfolios into socially responsible (green) and non-socially responsible (brown) components. We find that, in comparison to the non-socially responsible component, the socially responsible part exhibits a lower raw return, lower risk-adjusted return, lower Sharpe ratio, and similar degree of performance reversal. The magnitudes of these underperformances are, however, small and align with SRI having a limited negative impact on fund performance yet offering some diversification benefits.