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The conditional performance of US mutual funds over different market regimes: do different types of ethical screens matter?

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  • Nelson Areal
  • Maria Cortez
  • Florinda Silva

Abstract

We investigate the performance of US mutual funds that employ different ethical criteria: religious, socially responsible, and irresponsible. Performance is evaluated over different market regimes using a Markov-switching conditional CAPM approach that endogenously defines different states of the market. This model is also extended to a multifactor context. The results show that estimates of performance vary across different market regimes. The Vice Fund, which invests in unethical firms, outperforms in low-volatility regimes, but underperforms in high-volatility regimes. These results contradict the Vice Fund’s claim that it constitutes a “solid investment during recessionary periods”. Our results show that socially responsible and morally responsible funds exhibit different performance across different market conditions, thereby supporting the use of performance evaluation models that take into account different market regimes. Overall, different types of ethical screens seem to lead to different performance patterns across different market regimes. Copyright Swiss Society for Financial Market Research 2013

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  • Nelson Areal & Maria Cortez & Florinda Silva, 2013. "The conditional performance of US mutual funds over different market regimes: do different types of ethical screens matter?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 27(4), pages 397-429, December.
  • Handle: RePEc:kap:fmktpm:v:27:y:2013:i:4:p:397-429
    DOI: 10.1007/s11408-013-0218-5
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    12. Oscar V. De la Torre-Torres & Evaristo Galeana-Figueroa & José Álvarez-García, 2018. "Efficiency of the Public Pensions Funds on the Socially Responsible Equities of Mexico," Sustainability, MDPI, vol. 11(1), pages 1-18, December.
    13. Oscar V. De la Torre Torres & María Isabel Martínez Torre-Enciso, 2015. "Revisión de la Inversión Sustentable en La Bolsa Mexicana Durante Periodos de Crisis," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 10(2), pages 115-130, Julio-Dic.
    14. Juan Carlos Matallín-Sáez & Amparo Soler-Domínguez & Emili Tortosa-Ausina, 2016. "Does socially responsible mutual fund performance vary over the business cycle? New insights on the role of ethical strategy focus and green industry idiosyncratic risk," Working Papers 2016/03, Economics Department, Universitat Jaume I, Castellón (Spain).
    15. Oscar Valdemar De la Torre Torres & Luis Guadalupe Macías Trejo, 2017. "Los beneficios de la inversión socialmente responsable en el desempeño de fondos de pensiones mexicanos," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 12(3), pages 67-87, Julio-Sep.
    16. Hooi Hooi Lean & Fabio Pizzutilo, 2021. "Performances and risk of socially responsible investments across regions during crisis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3556-3568, July.
    17. Oscar V. De la Torre Torres & María Isabel Martínez Torre-Enciso, 2015. "Revisión de la Inversión Sustentable en La Bolsa Mexicana Durante Periodos de Crisis," Remef - The Mexican Journal of Economics and Finance, Instituto Mexicano de Ejecutivos de Finanzas. Remef, September.
    18. Łukasz Dopierała & Magdalena Mosionek-Schweda & Daria Ilczuk, 2020. "Does the Asset Allocation Policy Affect the Performance of Climate-Themed Funds? Empirical Evidence from the Scandinavian Mutual Funds Market," Sustainability, MDPI, vol. 12(2), pages 1-23, January.
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    More about this item

    Keywords

    Socially responsible mutual funds; Vice fund; Fund performance evaluation; Market regimes; Markov-switching conditional models; G10; G11; M14;
    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
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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