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Socially conscious investment funds and home country institutions

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  • Hoover, Gary A.
  • Smimou, K.

Abstract

We delve into performance and riskiness of socially conscious (SC) investment funds while considering the salient role of home country institutions as proxied by freedom indicators – namely, economic freedom with its five underlying component areas – in addition to the personal and overall human freedom of countries/regions as related to the home base currency of those funds. From a global perspective and including nonlinear considerations, evidence shows that advances in economic freedom and its constituent areas, as well as differences in personal freedom, have a consistent sizeable positive impact on the performance of SC funds but also a slight positive effect on their riskiness, attested to by various robustness tests. We articulate the added financial benefits to be gained when both socially responsible features and freedom infrastructure are present, confirming that freedom indicators matter. There is subtle evidence that changes in legal structure and security of property rights, as well as sound money, show a statistically and economically significant positive effect on performance across various specifications. In accord with widespread support for the importance of private property and the rule of law, this study shows that without sound money, a functioning legal system, and entrenched property rights, the performance of SC funds is stalled.

Suggested Citation

  • Hoover, Gary A. & Smimou, K., 2023. "Socially conscious investment funds and home country institutions," Economic Analysis and Policy, Elsevier, vol. 79(C), pages 395-417.
    • Handle: RePEc:eee:ecanpo:v:79:y:2023:i:c:p:395-417
    DOI: 10.1016/j.eap.2023.06.008
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    More about this item

    Keywords

    Institutions; Home country institutions; Economic freedom; International finance; Property rights; Rule of law; Economic growth; Socially responsible investing; Mutual funds; Portfolio selection; Sustainable investment; Green stocks;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • F3 - International Economics - - International Finance
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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