scholarly journals The Effect of the Business Cycle on the Performance of Socially Responsible Equity Mutual Funds

2011 ◽  
Author(s):  
Andrea J. Roofe Sattlethight
Keyword(s):  
Business Cycle ◽  
Mutual Funds ◽  
Socially Responsible ◽  
Equity Mutual Funds ◽  
The Business Cycle

scholarly journals Risk and Performance of European Green and Conventional Funds

2021 ◽  
Vol 13 (8) ◽  
pp. 4226
Author(s):  
Tiago Gonçalves ◽  
Diego Pimentel ◽  
Cristina Gaio
Keyword(s):  
Business Cycle ◽  
Mutual Funds ◽  
Factor Model ◽  
World Market ◽  
The European Union ◽  
Single Factor ◽  
Multifactor Models ◽  
Multifactor Model ◽  
Negative Results ◽  
The Business Cycle

This paper analyzes how the risk-adjusted returns of green funds compare to those of conventional funds, between the years 2005 and 2020 for the European Union countries. Additionally, we tested how the performance of green funds correlates to the business cycle, subdividing their performance through expansionary and recessionary times. The findings are summarized as follows: our regression results demonstrated green and conventional funds exhibiting negative abnormal adjusted-returns against the developed world market benchmark for the single-factor and multifactor models. For the European market benchmark, we found environmental mutual funds presenting a positive performance for both models and conventional funds displaying negative results for the single-factor model and positive results for the multifactor model. The factor loadings for green funds indicated a negative load on momentum, book-to-market (HML) and size (SMB) factors, revealing a higher exposure to big and value companies. Subsampling per business cycle exhibited green mutual funds providing higher risk-adjusted returns to investors during crisis periods and mixed results for the non-crisis periods.

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.

Does socially responsible mutual fund performance vary over the business cycle? New insights on the effect of idiosyncratic SR features

2018 ◽  
Vol 28 (1) ◽  
pp. 71-98 ◽  
Author(s):  
Juan Carlos Matallín-Sáez ◽  
Amparo Soler-Domínguez ◽  
Diego Víctor de Mingo-López ◽  
Emili Tortosa-Ausina
Keyword(s):  
Business Cycle ◽  
Mutual Fund ◽  
Fund Performance ◽  
Mutual Fund Performance ◽  
Socially Responsible ◽  
The Business Cycle

scholarly journals The Business Cycle And The Portfolio Composition Of Mutual Funds

2020 ◽  
Vol 4 (2) ◽  
pp. 5-13
Author(s):  
Halil D. Kaya ◽  
Julia S. Kwok
Keyword(s):  
Business Cycle ◽  
Mutual Funds ◽  
Investment Strategy ◽  
Nonparametric Tests ◽  
The Other ◽  
Common Stocks ◽  
Business Condition ◽  
The Business Cycle ◽  
Fund Portfolio ◽  
The Relationship

This paper summarizes the arguments and counterarguments within the scientific discussion on the issue of mutual funds’ composition across the business cycle. The main purpose of the research is to determine whether mutual funds alter their investments across the business cycle. Systematization of the literary sources and approaches for solving the problem of the relationship between the business cycle and the composition of mutual funds indicates that five-star rated mutual funds may have an investment strategy that is different from lower-rated funds. Investigation of the topic of the relationship between the business cycle and composition of mutual funds in the paper is carried out in the following logical sequence: First, we classified each quarter as an “improving” or a “worsening” business condition period based on the Aruoba-Diebold-Scotti Business Conditions Index. As a result, we had seven “improving” and seven “worsening” business condition periods during our sample period. Then, we compared each star group (one-star to five-star) investments in common stocks, preferred stocks, convertible bonds, warrants, corporate bonds, municipal bonds, government bonds, other securities, and cash across the “improving” versus the “worsening” periods. The methodological tools utilized in this research were nonparametric tests. The objects of the research are the mutual funds listed in the CRSP quarterly mutual funds dataset for the 2003-2006 period. The paper presents the results of empirical analysis for these mutual funds, which showed that five-star funds tend to have a different strategy when compared to lower-rated funds. The research empirically confirms and theoretically proves that the five-star funds tend to invest more in riskier assets and they tend to better adjust to the conditions (i.e. invest more in common stocks and less in bonds in improving periods) when compared to the other groups. This explains their success: higher NAVs compared to the other groups and higher star ratings. On the other hand, our results show that the lower-rated funds do not adjust their investments in main asset classes like stock and bonds during “improving” versus “worsening” business condition periods. Overall, our results indicate that mutual funds’ star ratings and NAVs are linked to these funds’ success in their adaptation to the macro-economic environment. The results of the research can be useful for investment firms or individual investors that consider investing in U.S. mutual funds. Keywords: mutual fund, portfolio, business cycle, recession, net asset value.

The performance of socially responsible equity mutual funds: Evidence from Sweden

2017 ◽  
Vol 27 (2) ◽  
pp. 108-126 ◽  
Author(s):  
Carlos Leite ◽  
Maria Ceu Cortez ◽  
Florinda Silva ◽  
Christopher Adcock
Keyword(s):  
Mutual Funds ◽  
Socially Responsible ◽  
Equity Mutual Funds

Business cycle and investment flows of retail and institutional mutual funds

2017 ◽  
Vol 13 (5) ◽  
pp. 498-520 ◽  
Author(s):  
Galla Salganik-Shoshan
Keyword(s):  
Risk Factors ◽  
Business Cycle ◽  
Mutual Funds ◽  
Mutual Fund ◽  
Institutional Investors ◽  
Flow Patterns ◽  
Content Type ◽  
The Business Cycle ◽  
Systematic Risk Factors ◽  
Fund Investment

Purpose The purpose of this paper is to investigate the dynamics of mutual fund investment flows across the business cycle. To account for the differences in the flow patterns of funds catered for institutional investors and those focusing on retail investors, the author conducts this investigation separately for flows of institutional and retail funds. Design/methodology/approach The author uses the sample of US equity mutual funds for the period between 1999 and 2012. For the samples of each type of fund, the author performs separate analyses for expansion and recession periods. Following Sirri and Tufano (1998), the author implements the Fama MacBeth (1973) approach. Findings The author finds that flow patterns of both fund types vary across the business cycle. For example, the results reveal that during bad times, institutional investors demonstrate weaker return-chasing behavior, while paying higher attention to Jensen’s α, than during good times. In addition, the author reports results on the effect of fund exposure to various systematic risk factors. For instance, the author observes that during economic downturns, investors of both fund types tend to punish managers with higher market exposure. During expansions, the fund’s market exposure positively affects flows of institutional funds, while its effect on the flows of retail funds remains negative. Originality/value To the best of the author’s knowledge, this is the first study that investigates mutual fund investment flow patterns across the business cycle, while simultaneously accounting for differences in flow patterns between retail and institutional funds. A further contribution of this paper is that it explores the previously overlooked relationships between fund flows and their exposure to various systematic risk factors.

scholarly journals ESG-Washing in the Mutual Funds Industry? From Information Asymmetry to Regulation

Risks ◽  
2021 ◽  
Vol 9 (11) ◽  
pp. 199
Author(s):  
Bertrand Candelon ◽  
Jean-Baptiste Hasse ◽  
Quentin Lajaunie
Keyword(s):  
Information Asymmetry ◽  
Mutual Funds ◽  
Investment Decisions ◽  
Financial Information ◽  
Socially Responsible ◽  
Responsible Investment ◽  
International Panel ◽  
Equity Mutual Funds ◽  
Financial Ratings ◽  
Asset Managers

In this paper, we study the asymmetric information between asset managers and investors in the socially responsible investment (SRI) market. Specifically, we investigate the lack of transparency of the extra-financial information communicated by asset managers. Using a unique international panel dataset of approximately 1500 equity mutual funds, we provide empirical evidence that some asset managers portray themselves as socially responsible yet do not make tangible investment decisions. Furthermore, our results indicate that the financial performance of mutual funds is not related to asset managers’ signals but should be evaluated relatively using extra-financial ratings. In summary, our findings advocate for a unified regulation framework that constrains asset managers’ communication.

scholarly journals Social Screens and Systematic Investor Boycott Risk

2017 ◽  
Vol 52 (1) ◽  
pp. 365-399 ◽  
Author(s):  
H. Arthur Luo ◽  
Ronald J. Balvers
Keyword(s):  
Risk Factor ◽  
Business Cycle ◽  
Abnormal Return ◽  
Risk Measures ◽  
Litigation Risk ◽  
Socially Responsible ◽  
Relative Wealth ◽  
The Business Cycle

We model the pricing implications of screens adopted by socially responsible investors. The model reproduces the empirically observed abnormal return to sin stock and implies a premium for systematic investor boycott risk that affects targeted as well as nontargeted firms. The investor boycott premium is not displaced by litigation risk, measures of neglect effect, illiquidity, industry momentum, or concentration. The investor boycott risk factor is useful in explaining mean returns across industries, and its premium varies with the relative wealth of socially responsible investors and the business cycle.

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