We conduct the first comparative analysis of the financial performance of European green, black (fossil energy and natural resource) and conventional mutual funds. Based on a unique dataset of 175 ...green, 259 black and 976 conventional mutual funds, the investigation contrasts the financial performance of the three dissimilar investment orientations over the 1991-2014 period. Over the full sample period, green mutual funds significantly underperform relative to conventional funds, while no significant risk-adjusted performance differences between green and black mutual funds could be established during the same period. Environmentally friendly investment vehicles display a significant exposure to small cap and growth stocks, while black funds are more exposed to value stocks. Remarkably, the green funds' risk-adjusted return profile progressively improves over time until no difference in the performance of the green and the conventional classes could be discerned. Further evidence suggests that the green funds are beginning to significantly outperform their black peers, especially over the 2012-2014 investment window.
Using a comprehensive list of terrorist attacks over three decades, we find that aggregate investor risk aversion inversely relates to terrorist activity in the United States. A one standard ...deviation increase in the number of attacks each month leads to a $75.09 million drop in aggregate flows to equity funds and a $56.81 million increase to government bond funds. Tests on alternative channels further suggest that the shift in aggregate risk aversion is driven mainly by an emotional shock rather than changes in wealth or the outside environment. We also investigate possible alternate explanations for reduced flows to risky assets. Our evidence is consistent with a fear-induced increase in aggregate risk aversion.
The paper provides empirical evidence that strategic complementarities among investors generate fragility in financial markets. Analyzing mutual fund data, we find that, consistent with a theoretical ...model, funds with illiquid assets (where complementarities are stronger) exhibit stronger sensitivity of outflows to bad past performance than funds with liquid assets. We also find that this pattern disappears in funds where the shareholder base is composed mostly of large investors. We present further evidence that these results are not attributable to alternative explanations based on the informativeness of past performance or on clientele effects. We analyze the implications for funds’ performance and policies.
In this paper, we tackle the issue of evaluating an important class of green investing that integrate classical financial tasks with some environmental issues: the so-called green mutual funds.
In ...order to do this, we first propose three measures of environmental sustainability which may give financial agents information on the greenity of their investments. These alternative indicators could serve as an overall measure of environmental sustainability and overcome the drawback that limits the evaluation of green investments to the measurement of CO2 emissions while often more than one environmental aspects may be considered.
Secondly, we propose some models aimed at evaluating the performance of green mutual funds by taking into account the proposed environmental measures as well as some classical financial indicators. The analysis is carried out in a Data Envelopment Analysis (DEA) framework, since DEA models can consider strategic non-financial objective measures in addition to traditional financial metrics in order to give a more balanced view of socially responsible investments (SRI). The presented models include indicators of environmental sustainability in different ways, either by penalizing a high environmental consumption or by rewarding an environmental saving entailed by a low consumption. The environmental measures and the models proposed are applied to a set of European green funds in the periods 2012–2015 and 2010–2015 to conduct an extensive analysis.
•We propose indicators to measure the environmental saving/consumption of funds.•We evaluate the performance of green mutual funds with a DEA approach.•The DEA models proposed consider both environmental and financial indicators.•An empirical investigation is carried out on European green mutual funds.•A comparison of the performances of green and non-green funds is also conducted.
Can water mutual funds aid sustainable development? Ibikunle, Gbenga; Martí‐Ballester, Carmen‐Pilar
International journal of finance and economics,
January 2022, 2022-01-00, 20220101, Volume:
27, Issue:
1
Journal Article
Peer reviewed
Open access
We conduct the first comparative analysis of the financial performance of global water mutual funds with conventional, ecology and natural resources mutual funds. Based on a unique sample of 88 ...water, 198 ecology, 370 natural resources, and 7,437 conventional mutual funds covering the 2008–2017 period, we contrast the financial performance of these four different fund types. On average, water mutual funds perform comparably to conventional mutual funds and outperform ecology and natural resources funds. The performance dynamics is linked to the state of the economy, such that the outperformance by water mutual funds is not observed when markets are bearish. Overall, fund risk‐adjusted performance is predominantly driven by investor activity, especially with regards to their perception of environmental regulatory risk profiles of funds' constituents.
To understand why investors hold socially responsible mutual funds, we link administrative data to survey responses and behavior in incentivized experiments. We find that both social preferences and ...social signaling explain socially responsible investment (SRI) decisions. Financial motives play less of a role. Socially responsible investors in our sample expect to earn lower returns on SRI funds than on conventional funds and pay higher management fees. This suggests that investors are willing to forgo financial performance in order to invest in accordance with their social preferences.
Passive investors, not passive owners Appel, Ian R.; Gormley, Todd A.; Keim, Donald B.
Journal of financial economics,
07/2016, Volume:
121, Issue:
1
Journal Article
Peer reviewed
Open access
Passive institutional investors are an increasingly important component of U.S. stock ownership. To examine whether and by which mechanisms passive investors influence firms' governance, we exploit ...variation in ownership by passive mutual funds associated with stock assignments to the Russell 1000 and 2000 indexes. Our findings suggest that passive mutual funds influence firms' governance choices, resulting in more independent directors, removal of takeover defenses, and more equal voting rights. Passive investors appear to exert influence through their large voting blocs, and consistent with the observed governance differences increasing firm value, passive ownership is associated with improvements in firms’ longer-term performance.
Using micro-level data on mutual funds from different financial centers investing in equity and bonds, this paper analyzes how investors and managers behave and transmit shocks across countries. The ...paper shows that the volatility of mutual fund investments is quantitatively driven by both the underlying investors and fund managers through (i) injections into/redemptions out of each fund and (ii) managerial changes in country weights and cash. Both investors and managers respond to country returns and crises and adjust their investments substantially, e.g., generating large reallocations during the global financial crisis. Their behavior tends to be pro-cyclical, reducing their exposure to countries during bad times and increasing it when conditions improve. Managers actively change country weights over time, although there is significant short-run pass-through from returns to country weights. Capital flows from mutual funds do not seem to have a stabilizing role and expose countries in their portfolios to foreign shocks.
► This paper studies how investors and managers react to shocks and crises. ► And the impact on capital flows through international investment allocations. ► Investors inject/redeem money into each fund. ► Managers change country weights and cash. ► Both act pro-cyclically to crises and do not stabilize capital flows.
Proponents of IFRS argue that mandating a uniform set of accounting standards improves financial statement comparability that in turn attracts greater cross-border investment. We test this assertion ...by examining changes in foreign mutual fund investment in firms following mandatory IFRS adoption in the European Union in 2005. We measure improved comparability as a credible increase in uniformity, defined as a large increase in the number of industry peers using the same accounting standards in countries with credible implementation. Consistent with this assertion, we find that foreign mutual fund ownership increases when mandatory IFRS adoption leads to improved comparability.
► Foreign mutual fund ownership increases in the EU after mandatory adoption of IFRS. ► The increase in mutual fund ownership is larger when IFRS adoption improves comparability. ► Both implementation credibility and increased uniformity are important factors leading to improved comparability. ► The effects of improved comparability do not increase domestic mutual fund ownership. ► The effects of improved comparability on foreign fund ownership are primarily driven by foreign global funds, as opposed to foreign regional, country, and other funds.
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