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The effect of business cycle, market return and momentum on financial performance of socially responsible investing mutual funds

The effect of business cycle, market return and momentum on financial performance of socially... <jats:sec><jats:title content-type="abstract-subheading">Purpose</jats:title> <jats:p>This study examines the effect of business cycle, market return and momentum on the financial performance of socially responsible investing (SRI) mutual funds using data from two complete business cycles as defined by the National Bureau of Economic Research (NBER).</jats:p> </jats:sec> <jats:sec><jats:title content-type="abstract-subheading">Design/methodology/approach</jats:title> <jats:p>A “fund of funds” approach is used to identify the extent to which SRI financial performance is affected by the macroeconomic climate. The Fama-French Three-Factor model and the Carhart four-factor model are used to bring the results into alignment with commonly used finance methodologies.</jats:p> </jats:sec> <jats:sec><jats:title content-type="abstract-subheading">Findings</jats:title> <jats:p>The results indicate that SRI tends to preserve value during economic contraction more than it adds value during economic expansion. Market return is important during both expansion and contraction, while momentum is important only during expansion.</jats:p> </jats:sec> <jats:sec><jats:title content-type="abstract-subheading">Research limitations/implications</jats:title> <jats:p>These findings suggest that double screening, for both financial and social performance, enables portfolio managers of SRI funds to have insight into those companies that are particularly vulnerable during times of economic contraction.</jats:p> </jats:sec> <jats:sec><jats:title content-type="abstract-subheading">Practical implications</jats:title> <jats:p>These results bring added clarity to the mixed findings found by previous researchers examining the relationship between corporate social performance (CSP) and financial performance.</jats:p> </jats:sec> <jats:sec><jats:title content-type="abstract-subheading">Social implications</jats:title> <jats:p>This study reinforces the idea that the financial performance of companies with high ethical standards is comparable to the financial performance of the market as a whole during times of economic expansion and superior to the market as a whole during times of economic contraction.</jats:p> </jats:sec> <jats:sec><jats:title content-type="abstract-subheading">Originality/value</jats:title> <jats:p>Business cycle analysis, along with the Fama-French Three-Factor model and the Carhart four-factor model, brings SRI research more into the realm of conventional financial analysis than previous studies.</jats:p> </jats:sec> http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Social Responsibility Journal CrossRef

The effect of business cycle, market return and momentum on financial performance of socially responsible investing mutual funds

Social Responsibility Journal , Volume 13 (3): 513-528 – Aug 7, 2017

The effect of business cycle, market return and momentum on financial performance of socially responsible investing mutual funds


Abstract

<jats:sec><jats:title content-type="abstract-subheading">Purpose</jats:title>
<jats:p>This study examines the effect of business cycle, market return and momentum on the financial performance of socially responsible investing (SRI) mutual funds using data from two complete business cycles as defined by the National Bureau of Economic Research (NBER).</jats:p>
</jats:sec>
<jats:sec><jats:title content-type="abstract-subheading">Design/methodology/approach</jats:title>
<jats:p>A “fund of funds” approach is used to identify the extent to which SRI financial performance is affected by the macroeconomic climate. The Fama-French Three-Factor model and the Carhart four-factor model are used to bring the results into alignment with commonly used finance methodologies.</jats:p>
</jats:sec>
<jats:sec><jats:title content-type="abstract-subheading">Findings</jats:title>
<jats:p>The results indicate that SRI tends to preserve value during economic contraction more than it adds value during economic expansion. Market return is important during both expansion and contraction, while momentum is important only during expansion.</jats:p>
</jats:sec>
<jats:sec><jats:title content-type="abstract-subheading">Research limitations/implications</jats:title>
<jats:p>These findings suggest that double screening, for both financial and social performance, enables portfolio managers of SRI funds to have insight into those companies that are particularly vulnerable during times of economic contraction.</jats:p>
</jats:sec>
<jats:sec><jats:title content-type="abstract-subheading">Practical implications</jats:title>
<jats:p>These results bring added clarity to the mixed findings found by previous researchers examining the relationship between corporate social performance (CSP) and financial performance.</jats:p>
</jats:sec>
<jats:sec><jats:title content-type="abstract-subheading">Social implications</jats:title>
<jats:p>This study reinforces the idea that the financial performance of companies with high ethical standards is comparable to the financial performance of the market as a whole during times of economic expansion and superior to the market as a whole during times of economic contraction.</jats:p>
</jats:sec>
<jats:sec><jats:title content-type="abstract-subheading">Originality/value</jats:title>
<jats:p>Business cycle analysis, along with the Fama-French Three-Factor model and the Carhart four-factor model, brings SRI research more into the realm of conventional financial analysis than previous studies.</jats:p>
</jats:sec>

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Publisher
CrossRef
ISSN
1747-1117
DOI
10.1108/srj-09-2016-0154
Publisher site
See Article on Publisher Site

Abstract

<jats:sec><jats:title content-type="abstract-subheading">Purpose</jats:title> <jats:p>This study examines the effect of business cycle, market return and momentum on the financial performance of socially responsible investing (SRI) mutual funds using data from two complete business cycles as defined by the National Bureau of Economic Research (NBER).</jats:p> </jats:sec> <jats:sec><jats:title content-type="abstract-subheading">Design/methodology/approach</jats:title> <jats:p>A “fund of funds” approach is used to identify the extent to which SRI financial performance is affected by the macroeconomic climate. The Fama-French Three-Factor model and the Carhart four-factor model are used to bring the results into alignment with commonly used finance methodologies.</jats:p> </jats:sec> <jats:sec><jats:title content-type="abstract-subheading">Findings</jats:title> <jats:p>The results indicate that SRI tends to preserve value during economic contraction more than it adds value during economic expansion. Market return is important during both expansion and contraction, while momentum is important only during expansion.</jats:p> </jats:sec> <jats:sec><jats:title content-type="abstract-subheading">Research limitations/implications</jats:title> <jats:p>These findings suggest that double screening, for both financial and social performance, enables portfolio managers of SRI funds to have insight into those companies that are particularly vulnerable during times of economic contraction.</jats:p> </jats:sec> <jats:sec><jats:title content-type="abstract-subheading">Practical implications</jats:title> <jats:p>These results bring added clarity to the mixed findings found by previous researchers examining the relationship between corporate social performance (CSP) and financial performance.</jats:p> </jats:sec> <jats:sec><jats:title content-type="abstract-subheading">Social implications</jats:title> <jats:p>This study reinforces the idea that the financial performance of companies with high ethical standards is comparable to the financial performance of the market as a whole during times of economic expansion and superior to the market as a whole during times of economic contraction.</jats:p> </jats:sec> <jats:sec><jats:title content-type="abstract-subheading">Originality/value</jats:title> <jats:p>Business cycle analysis, along with the Fama-French Three-Factor model and the Carhart four-factor model, brings SRI research more into the realm of conventional financial analysis than previous studies.</jats:p> </jats:sec>

Journal

Social Responsibility JournalCrossRef

Published: Aug 7, 2017

References