Abstract
This study examines the Socially Responsible (SR) exchange-traded funds (ETFs) by comparing their risk-adjusted performance with a matched group of conventional ETFs in the U.S. equity market. In contrast to prior studies that focus on actively managed mutual funds, we find that the risk-adjusted returns of SR ETFs are significantly lower than those of conventional ETFs during the 2005–2020 period. Such underperformance is only observed in non-crisis periods but not in economic crisis periods (i.e., the 2020 pandemic recession and 2008 financial turmoil). We attribute the observed underperformance of SR ETFs during the non-crisis periods to their limited diversification of unsystematic risks resulting from various negative or positive screens employed in the funds. We also find that net fund flows of the SR ETFs are less sensitive to past negative performance than are conventional fund flows. Collectively, our findings suggest that, instead of seeking wealth maximization, socially conscious investors may choose SR ETFs to gain non-economic utility.
Recommended Citation
Dai, Y., Guo, L., Liu, S., & Zhang, H. (2022). Are Socially Responsible Exchange-Traded Funds Paying Off in Performance?. International Review of Finance Wiley.
The definitive version is available at https://doi.org/10.1111/irfi.12389
Department(s)
Business and Information Technology
Keywords and Phrases
exchange-traded fund; fund flows; portfolio performance; socially responsible investing
International Standard Serial Number (ISSN)
1468-2443; 1369-412X
Document Type
Article - Journal
Document Version
Final Version
File Type
text
Language(s)
English
Rights
© 2023 Wiley, All rights reserved.
Publication Date
01 Jan 2022
