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The performance of socially responsible mutual funds: a volatility‐match approach

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  • Javier Rodríguez

Abstract

Purpose - The purpose of this paper is to examine the performance of a sample of socially responsible mutual funds (SRMFs) and a matched sample of conventional funds during the 1997‐2005 time period. Design/methodology/approach - Risk‐adjusted performance is examined using several methodologies, including a measure that compares the performance of a fund with that of an efficient and volatility‐match benchmark portfolio. Findings - On the basis of the raw returns, socially responsible funds performed better than some market indexes but this evidence of outperformance disappears once risk is incorporated into the analysis. Consistent with previous studies, no evidence was found of out performance by socially responsible funds. Also, the difference between the performance of SRMFs and conventional mutual funds is not statistically significant. This result is robust to the use of two additional measures of risk‐adjusted performance. Originality/value - To measure risk‐adjusted performance, a measure first introduced by Graham and Harvey was employed. Similar to the Jensen's alpha of a single factor model, the Graham and Harvey measure evaluates fund performance relative to a volatility‐match benchmark but does not depend on a linear model specification and thus is free from the potential biases presented by linear models.

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  • Javier Rodríguez, 2010. "The performance of socially responsible mutual funds: a volatility‐match approach," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 9(2), pages 180-188, May.
    • Handle: RePEc:eme:rafpps:v:9:y:2010:i:2:p:180-188
    DOI: 10.1108/14757701011044189
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    References listed on IDEAS

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    1. Grinblatt, Mark & Titman, Sheridan D, 1989. "Mutual Fund Performance: An Analysis of Quarterly Portfolio Holdings," The Journal of Business, University of Chicago Press, vol. 62(3), pages 393-416, July.
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    6. Zakri Y. Bello, 2005. "Socially Responsible Investing And Portfolio Diversification," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 28(1), pages 41-57, March.
    7. Ferson, Wayne E & Schadt, Rudi W, 1996. "Measuring Fund Strategy and Performance in Changing Economic Conditions," Journal of Finance, American Finance Association, vol. 51(2), pages 425-461, June.
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