Practical Applications of Classifying and Measuring the Performance of Socially Responsible Mutual Funds

Abstract

The demand for socially responsbile investment opportunities has shown that investors care about the expressive and emotional benefits of their investments, beyond the utilitarian benefits of high profits. Indeed, many values-based investors are willing to sacrifice utilitarian profits for the benefits of being true to their values. What distinguishes socially responsible from conventional portfolios? What is the best performance measure for socially responsible portfolios?

In an interview with Institutional Investor Journals , Meir Statman , Professor of Finance at the Leavey School of Business , advises investors to add two social responsibility factors to the common four-factor asset pricing model and discusses the link between behavioral finance and socially responsible investing. He explains why he doesn’t invest in socially responsible funds.

TOPICS: Performance measurement, analysis of individual factors/risk premia, factor-based models