The effect of business cycle, market return and momentum on financial performance of socially responsible investing mutual funds

2017 ◽  
Vol 13 (3) ◽  
pp. 513-528 ◽  
Author(s):  
Karen Paul
Keyword(s):  
Business Cycle ◽  
Financial Performance ◽  
Mutual Funds ◽  
Factor Model ◽  
Social Performance ◽  
Socially Responsible ◽  
Content Type ◽  
Responsible Investing ◽  
Market Return ◽  
Three Factor

Purpose This study examines the effect of business cycle, market return and momentum on the financial performance of socially responsible investing (SRI) mutual funds using data from two complete business cycles as defined by the National Bureau of Economic Research (NBER). Design/methodology/approach A “fund of funds” approach is used to identify the extent to which SRI financial performance is affected by the macroeconomic climate. The Fama-French Three-Factor model and the Carhart four-factor model are used to bring the results into alignment with commonly used finance methodologies. Findings The results indicate that SRI tends to preserve value during economic contraction more than it adds value during economic expansion. Market return is important during both expansion and contraction, while momentum is important only during expansion. Research limitations/implications These findings suggest that double screening, for both financial and social performance, enables portfolio managers of SRI funds to have insight into those companies that are particularly vulnerable during times of economic contraction. Practical implications These results bring added clarity to the mixed findings found by previous researchers examining the relationship between corporate social performance (CSP) and financial performance. Social implications This study reinforces the idea that the financial performance of companies with high ethical standards is comparable to the financial performance of the market as a whole during times of economic expansion and superior to the market as a whole during times of economic contraction. Originality/value Business cycle analysis, along with the Fama-French Three-Factor model and the Carhart four-factor model, brings SRI research more into the realm of conventional financial analysis than previous studies.

Socially responsible investing: a review of the critical issues

2015 ◽  
Vol 41 (11) ◽  
pp. 1176-1201 ◽  
Author(s):  
Joan Junkus ◽  
Thomas D. Berry
Keyword(s):  
Mutual Funds ◽  
Firm Value ◽  
Socially Responsible Investing ◽  
Model Specification ◽  
Future Research ◽  
Socially Responsible ◽  
Content Type ◽  
Responsible Investment ◽  
Definitive Answer ◽  
Responsible Investing

Purpose – The purpose of this paper is to provide a review of the most recent work in major finance journals on socially responsible investment (SRI). While SRI involves individual investors, firms, and investment managers, the authors concentrate primarily on the investment view. Design/methodology/approach – The authors briefly review the development of socially responsible investing (SRI) and the theoretical issues related to SRI and investment choice. This is followed by a review of the empirical results concerning firm value. The question of whether SR mutual funds and SR indexes differ in performance or other characteristics from their conventional counterparts is discussed next, and lastly the authors present suggestions for future research directions. Findings – Despite the large and extensive amount of empirical research published on SRI in recent years, the authors find no definitive answer to the question of SR actions for either the firm or the investor. For firms, evidence linking corporate social responsibility (CSR) rankings with higher value is mixed, and depends on the type of CSR behavior studied as well as the measures of firm performance used. The performance of SR mutual funds and indexes generally are not significantly different from conventional funds or indexes, but again these results are also highly dependent on model specification, time period, benchmark, and other characteristics of the study. Practical implications – The value of SR investing has not been definitely proved. This means, however, that there is room for further on this important topic. Originality/value – This paper synthesizes and presents the most recent research on SRI from a wide variety of refereed sources.

Performance of Socially Responsible Portfolios Across Sectors in Indian Stock Market

Think India ◽  
2016 ◽  
Vol 19 (1) ◽  
pp. 01-09
Author(s):  
Vanita Tripathi ◽  
Varun Bhandari
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Factor Model ◽  
Sharpe Ratio ◽  
Market Model ◽  
Socially Responsible ◽  
Cross Sectional ◽  
Responsible Investing ◽  
Indian Stock Market ◽  
Three Factor

The question of whether socially responsible stocks outperform or under-perform general stocks has been of keen interest for various researchers and academicians. This paper seeks to empirically examine the performance of socially responsible portfolios across various sectors and index of socially responsible and general companies in Indian stock market. We have taken up S&P ESG and CNX NIFTY as the indices of socially responsible and general companies respectively. ESG index has been classified into six different sectors on the basis of GICS. Performance has been evaluated in terms of risk, return and various risk-adjusted measures like Sharpe ratio, Treynor ratio, Double Sharpe ratio, Modified Sharpe ratio, M2 measure, Jensens alpha, Famas decomposition measure, etc. We have also checked whether market model is sufficient to explain cross sectional variation in stock returns or we need Fama-French three factor model. The study period ranges from January 1996 – December 2013 and it is further divided into different sub-periods. We find that socially responsible stocks across IT, FMCG and financial sectors are well rewarding in Indian stock market by generating significantly higher returns and outperforming the two indices on the basis of risk-adjusted measures employed during 18 year period and different sub-periods. The results uphold even with the use of market model and Fama-French three factor model by generating highest significant excess returns. There is no empirical evidence on the performance evaluation of socially responsible portfolios across different sectors. Hence this study is first of its kind. This will help investors in selecting best sector for investment in socially responsible companies. Significant higher returns of ESG index and socially responsible stocks across different sectors make Socially Responsible Investing (SRI) a better investment vehicle for investors in India. This is the time when general companies should change their approach and agenda towards CSR and start considering ESG issues as their investment themes. The regulators, policy makers and mutual funds should come up with different socially responsible products and sectoral indices to initiate the movement of SRI across different sectors in India.

The impact of multinational corporations’ socially responsible supplier development practices on their corporate reputation and financial performance

2019 ◽  
Vol 50 (1) ◽  
pp. 3-25 ◽  
Author(s):  
Prema Latha Subramaniam ◽  
Mohammad Iranmanesh ◽  
Kavigtha Mohan Kumar ◽  
Behzad Foroughi
Keyword(s):  
Financial Performance ◽  
Multinational Corporations ◽  
Corporate Reputation ◽  
Social Performance ◽  
Equation Modeling ◽  
Supplier Development ◽  
Socially Responsible ◽  
Content Type ◽  
The Impact ◽  
The Relationship

Purpose In the literature on sustainable supply chain management, the social pillar of sustainability has received relatively little attention, especially in developing countries. The purpose of this paper is to test empirically the impacts of supplier development practices on suppliers’ social performance. Furthermore, the impact of suppliers’ social performance on MNCs’ social performance was investigated and corporate reputation was proposed as a potential explanation for the relationship between MNCs’ social and financial performance. Design/methodology/approach Data were obtained from a survey of 141 multinational companies (MNCs) in Malaysia which were listed in the Federation of Malaysia Manufacturers’ directory 2017. Data were analyzed using partial least squares structural equation modeling. Findings The results show that among the four proposed practices, supplier development and supplier collaboration have significant effects on suppliers’ social performance and consequently on the multi-national companies’ social performance. According to these results, multi-national companies’ corporate reputation mediates the relationship between their social and financial performance. Practical implications These results will be useful in helping managers of MNCs to realize that simply monitoring suppliers and giving them incentives are not effective ways of enhancing social responsibility among suppliers; instead, supplier development and collaboration such as technical support and training are needed. Originality/value The results extend the literature on socially responsible supplier development practices by testing empirically the impacts of four popular practices in the literature and showing that supplier monitoring and incentives have no effect.

Saving green while going green

2019 ◽  
Vol 45 (1) ◽  
pp. 21-35
Author(s):  
C. Edward Chang ◽  
Thomas M. Krueger ◽  
H. Doug Witte
Keyword(s):  
Mutual Funds ◽  
Performance Measures ◽  
Mutual Fund ◽  
Research Question ◽  
Turnover Rates ◽  
Operating Characteristics ◽  
Socially Responsible ◽  
Content Type ◽  
Responsible Investing ◽  
And Performance

Purpose The purpose of this paper is to examine the operating characteristics as well as risk and performance measures of all available self-proclaimed socially responsible funds (hereafter SRFs) in the USA over the ten-year (2007–2016) period. The first research question addressed is: Do SRFs perform as well as the average of all mutual funds in their respective categories? The second research question addressed is: Are SRF expense ratios correlated with fund performance? Design/methodology/approach This study analyzes all socially responsible equity mutual funds, as self-reported to Morningstar. This paper empirically compares operating characteristics and performance measures of SRFs relative to category averages in the US mutual fund industry. Operating characteristics include expense ratios and annual turnover rates. Performance measures include conventional return, risk and risk-adjusted return measures. Findings Although prior research suggests that socially responsible investing (SRI) indexes and SRI-friendly stocks have favorable returns, this study finds that these self-proclaimed SRFs underperform the average of all mutual funds in matched equity categories. However, this study demonstrates that a simple filter based on expense ratios can identify those SRFs that will enable investors to do quite well while doing good. Originality/value The contribution of this paper is twofold. First, the authors report that self-proclaimed SRFs, as a whole, have not generated competitive returns relative to other mutual funds in the same categories over the past ten years. This result contradicts the notion that socially responsible investors do not give up return performance when investing with their conscience. Second, the authors find that those SRFs with expense ratios in the lowest quartile of their respective category have significantly higher risk-adjusted returns and significantly lower turnover than category averages. Thus, by focusing on SRFs with low-expense ratios, socially responsible investors can do quite well while doing good.

scholarly journals Is there any effect of ESG scores on portfolio performance? Evidence from Europe and Turkey

2020 ◽  
Vol 4 (2) ◽  
pp. 129-143
Author(s):  
Emre Zehir ◽  
Aslı Aybars
Keyword(s):  
Factor Model ◽  
Efficient Market Hypothesis ◽  
Capital Asset Pricing ◽  
Portfolio Performance ◽  
Socially Responsible ◽  
Content Type ◽  
Responsible Investment ◽  
Asset Pricing Model ◽  
Market Index ◽  
Three Factor

PurposeThe purpose of this paper is to examine the performance of portfolios that are constructed based on environmental, social and governance (ESG) scores and consist of stocks located in Europe and Turkey.Design/methodology/approachIn order to form the portfolios, firstly all stocks are ranked in a descending way based on ESG-based (ESG, environmental, social and governance) scores, separately. Then, 10% of stocks with the highest scores are included in the “Top” portfolio and 10% of stocks with the lowest scores are included in “Bottom” portfolio and totally performance of eight portfolios are investigated. Finally, capital asset pricing model (CAPM) and Fama-French three-factor model are employed as performance measurement benchmarks.FindingsResults obtained from CAPM regression show that using ESG-based scores two portfolios underperform the market index. The results of the three-factor model provide that performances of Bottom ESG and Bottom GOV portfolios outperform the market excess return by 0.57% and 0.53%. The overall findings of this paper indicate that there is no relationship between socially responsible investment (SRI) and portfolio performance. These findings are in line with the efficient market hypothesis which indicates all information is reflected in prices.Originality/valueThe aim of the study is to provide insight on the question of “whether SRI has any effect on the portfolio performance”. As far as the literature review is concerned it is seen that this study provide additional insight by utilizing a longer time span together with data from numerous markets.

Performance measurement of Islamic mutual funds using DEA method

2020 ◽  
Vol 11 (8) ◽  
pp. 1481-1496
Author(s):  
Abul Hassan ◽  
Abdelkader Chachi ◽  
Mahfuzur Rahman Munshi
Keyword(s):  
Mutual Funds ◽  
Factor Model ◽  
Capital Asset Pricing ◽  
Data Envelopment ◽  
Comparative Performance ◽  
Content Type ◽  
Asset Pricing Model ◽  
Skewness Factor ◽  
Using Data ◽  
Three Factor

Purpose The purpose of this study is to update the investment literature by providing latest evidence of performance of Islamic mutual funds by using global sample mutual funds data to support with empirical facts. Design/methodology/approach This study analyzes the comparative performance of Islamic and conventional mutual funds by using capital asset pricing model, Fama & French’s three-factor model and Carhart’s four-factor model. Further, the study tested the coskenwness effect by using data envelopment analysis approach. Findings The authors find evidence that when size of the funds is controlled, Islamic investment underperform the conventional mutual funds in four out of six models. The size of underperformance varies from model to model: from 32 basis points in the Carhart’s four-factor model with the skewness factor to two basis points at the Fama and French’s three-factor model. Also the study finds that alpha(s) are only insignificant for conventional mutual funds when the skewness factor is included in the regression. While comparing the loading on Islamic mutual funds, results show that Islamic mutual funds are less risky than conventional mutual funds when they are controlled for skewness. Originality/value This study uses the different factor models of performance evolution which help in overcoming weakness of measuring the Islamic mutual funds’ performance.

Performance of Socially Responsible Portfolios Do Economic Conditions Matter?

2015 ◽  
Vol 4 (1) ◽  
Author(s):  
Varun Bhandari ◽  
Vanita Tripathi
Keyword(s):  
Factor Model ◽  
Socially Responsible Investing ◽  
Sharpe Ratio ◽  
Economic Conditions ◽  
Socially Responsible ◽  
Cross Sectional ◽  
Responsible Investing ◽  
Market Portfolio ◽  
The Impact ◽  
Three Factor

In a first of its kind, this paper examines the performance of various socially responsible stocks portfolios as compared to general stocks portfolios and market portfolio using return and various risk-adjusted measures over the period January 1996 - December 2013 and over different business economic conditions. Besides the conventional risk-adjusted measures, we have also used modified Sharpe ratio, double Sharpe ratio, M2 measure, alpha based on three factor Fama-French model and Famas decomposition measure. Further we have checked for the impact of economic conditions (recession or boom) on the alpha and slope coefficients. We have also examined whether single factor CAPM is sufficient to explain cross sectional variations across portfolios or we need a multi-factor model (like Fama-French three factor model). We find that despite having higher risk, socially responsible stocks portfolios generated significantly higher returns and hence outperformed other portfolios on the basis of all risk-adjusted measures as well as net selectivity returns during both recession and boom periods. The results uphold even with the use of Fama-French three factor model for estimating excess returns. The empirical results, besides augmenting the existing literature on performance evaluation, clearly indicate that investors in India have become more socially conscious as the stock market is rewarding socially responsible companies well in terms of higher returns (on risk adjusted basis). The study supports the view that socially responsible investing is boon for investors in India. Therefore, regulators, policy makers and mutual funds should construct and make available various socially responsible investment products to initiate the movement of socially responsible investing in India.

Performance of Socially Responsible Portfolios Across Sectors in Indian Stock Market

2016 ◽  
Vol 5 (1) ◽  
Author(s):  
Vanita Tripathi ◽  
Varun Bhandari
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Factor Model ◽  
Sharpe Ratio ◽  
Market Model ◽  
Socially Responsible ◽  
Cross Sectional ◽  
Responsible Investing ◽  
Indian Stock Market ◽  
Three Factor

The question of whether socially responsible stocks outperform or under-perform general stocks has been of keen interest for various researchers and academicians. This paper seeks to empirically examine the performance of socially responsible portfolios across various sectors and index of socially responsible and general companies in Indian stock market. We have taken up S&P ESG and CNX NIFTY as the indices of socially responsible and general companies respectively. ESG index has been classified into six different sectors on the basis of GICS. Performance has been evaluated in terms of risk, return and various risk-adjusted measures like Sharpe ratio, Treynor ratio, Double Sharpe ratio, Modified Sharpe ratio, M2 measure, Jensens alpha, Famas decomposition measure, etc. We have also checked whether market model is sufficient to explain cross sectional variation in stock returns or we need Fama-French three factor model. The study period ranges from January 1996 December 2013 and it is further divided into different sub-periods. We find that socially responsible stocks across IT, FMCG and financial sectors are well rewarding in Indian stock market by generating significantly higher returns and outperforming the two indices on the basis of risk-adjusted measures employed during 18 year period and different sub-periods. The results uphold even with the use of market model and Fama-French three factor model by generating highest significant excess returns. There is no empirical evidence on the performance evaluation of socially responsible portfolios across different sectors. Hence this study is first of its kind. This will help investors in selecting best sector for investment in socially responsible companies. Significant higher returns of ESG index and socially responsible stocks across different sectors make Socially Responsible Investing (SRI) a better investment vehicle for investors in India. This is the time when general companies should change their approach and agenda towards CSR and start considering ESG issues as their investment themes. The regulators, policy makers and mutual funds should come up with different socially responsible products and sectoral indices to initiate the movement of SRI across different sectors in India.

Corporate social performance and portfolio management

2015 ◽  
Vol 34 (9) ◽  
pp. 1144-1160 ◽  
Author(s):  
Emanuele Teti ◽  
Alberto Dell'Acqua ◽  
Leonardo L. Etro ◽  
Linda Benedetta Andreoletti
Keyword(s):  
Portfolio Management ◽  
Financial Risk ◽  
Corporate Social Performance ◽  
Factor Model ◽  
Social Performance ◽  
Generation Process ◽  
Socially Responsible ◽  
Data Set ◽  
Content Type ◽  
Short Termism

Purpose – The purpose of this paper is to assess the existence of a relationship between socially responsible behavior of companies and price trends of their stocks. Design/methodology/approach – The analysis is conducted by empirically testing data of environmental, social and governance ratings of a sample of European firms between December 2005 and December 2010. A disaggregate analysis is also performed to infer whether a specific contribution of all the different factors that make a business socially responsible can be observed in the value generation process. Findings – The results show that the application of a sustainable approach are successful in creating value, both to the investor and the issuer companies. Research limitations/implications – Findings of this work are significant with respect to portfolio management, because they suggest, on one hand, the myopia of a short-term approach (short-termism), and on the other hand, the importance of sustainable investing. Originality/value – This paper focusses on the integration that has led many international groups to explicitly include extra-financial risk factors in their decision-making processes, by applying the by the four-factor model on a brand new data set.

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