The Price of Ethics: Evidence from Mutual Funds
- 1 August 2006
- preprint
- Published by Elsevier BV in SSRN Electronic Journal
Abstract
This paper studies the economic effects of ethics by focusing on socially responsible investment (SRI) funds. Consistent with investors paying a price for ethics, SRI funds in many European and Asia-Pacific countries strongly underperform domestic benchmark portfolios by about 5% per annum. SRI investors are unable to identify the funds that will outperform in the future, whereas they show some fund-selection ability in identifying ethical funds that will perform poorly. Finally, the screening activities of SRI funds have a significant impact on funds' risk-adjusted returns and loadings on risk factors.Keywords
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