Socially responsible investing (SRI) mutual funds and market crises : an empirical analysis of the risk-adjusted performance of SRI funds relative to conventional funds during market crises

The master thesis aims to investigate the risk-adjusted performance of socially responsible investing (SRI) funds relative to conventional funds. We study the performance in different market states from March 2003 to March 2020, where we distinguish between crisis and noncrisis periods. The master thesis contributes with new insight by including the economic disruptions caused by the coronavirus pandemic in 2020. In our analysis, we use a matching procedure where each SRI fund is matched with three conventional funds based on specified criteria. We apply multi-factor models with dummy variables to distinguish between the respective funds and market states. Besides, we include interaction terms to account for variations in the risk factors. We study the performance of U.S. SRI equity mutual funds compared to U.S. conventional equity mutual funds through Jensen’s alpha. We find that SRI funds tend to outperform their conventional fund peers during the crisis period, but the result is not significant. Further, the result reveals that conventional funds contribute to a negative risk-adjusted return and are more exposed to market fluctuations during the crisis period. To test the robustness of the results, we analyze the funds using different SRI strategies and divide the period into two different sub-periods. The result show that the performance of SRI funds has improved over the years and tend to follow their conventional peers to a greater extent. We conclude that investing in SRI funds makes one neither better off, nor worse off