forthcoming, Journal of Financial and Quantitative Analysis

I study the dynamics of investor cash flows in socially responsible mutual funds. Consistent with anecdotal evidence of loyalty, the monthly volatility of investor cash flows is lower in socially responsible funds than conventional funds. I find strong evidence that cash flows into socially responsible funds are more sensitive to lagged positive returns than cash flows into conventional funds, and weaker evidence that cash outflows from socially responsible funds are less sensitive to lagged negative returns. These results indicate that investors derive utility from the socially responsible attribute, especially when returns are positive. Mutual fund companies continually introduce new types of funds in an effort to attract investor capital and maximize assets under management. The decision to introduce a new type of fund is affected by a number of variables, including investor demand for the fund’s attributes. As argued by Khorana and Servaes (1999), new fund types in high demand generate capital inflows and incremental revenue for the fund company