Fund Characteristics and Performances of Socially Responsible Mutual Funds: Do ESG Ratings Play a Role?

TL;DR

This study investigates how ESG ratings influence the performance and fund flows of socially responsible mutual funds, especially during economic crises, revealing that higher-rated funds perform better in downturns.

Contribution

It provides new insights into the role of ESG ratings in fund performance and flows during economic cycles, highlighting their importance for investors and managers.

Findings

High ESG rated funds outperform during economic crises

Low ESG rated funds have higher differential cash flows during stable periods

ESG ratings significantly impact fund performance and investor behavior

Abstract

This paper examines the risk-adjusted performance and differential fund flows for socially responsible mutual funds (SRMF). The results show that SRMF rated high on ESG, perform better than lower rated ESG funds during the period of economic crisis. The findings also show that low ESG rated SRMF had higher differential cash-flows than high rated ESG funds except for the period of economic down turn. The findings are of interest to financial advisors, investors, mutual fund managers, and researchers on how SRMF performance responds to periods of economic downturn and expansion