The dynamics of socially responsible investment funds’ performance persistence : A thesis submitted in partial fulfilment of the requirements for the Degree of Doctor of Philosophy at Lincoln University

Abstract

Socially Responsible Investment (SRI) is an investment strategy that considers social, ethical and environmental elements in investment. SRIs have grown into a widely followed investment practice offering a variety of products to investors. This fund industry is more focused on embracing sustainability practices in its operations. Performance persistence is a good indication for investors, analysts, portfolio managers and institutions. However, there is a paucity of research on the persistence of SRI funds. This study analyses the performance persistence of SRI funds in the United States (US) from 2001 to 2021, including the 2008 global financial crisis and the COVID-19 pandemic crisis. First, we examine the performance persistence of SRI funds before, during and after the 2008 global financial crisis. Second, we investigate the performance persistence of SRI funds before and during the COVID-19 pandemic crisis. Third, we focus on the relationships between fund-specific factors and the performance persistence of SRI funds. Finally, we explore the impact of macroeconomic indicators on the performance persistence of SRI funds. We use Carhart (1997) and Fama French (2015) models to measure the performance of SRI funds. We then follow Hendricks, Patel and Zeckhauser (1993) and Carhart (1997) recursive methods to analyse the performance persistence of SRI funds. We use multinomial logit regression to identify the relationships between fund-specific factors (fund size, age, flow and asset class), macroeconomic variables (interest rate, inflation, money supply and economic activity) and the performance persistence of SRI funds. Our results reveal a positive, significant performance persistence in SRI funds before and during the 2008 global financial crisis. However, the results show no evidence of performance persistence before the COVID-19 period crisis; only the nonparametric tests reveal positive performance persistence of SRI funds during the COVID-19 pandemic crisis. Fund characteristics and macroeconomic variables significantly affect the performance persistence of SRI funds. We divide the study period following the 2008 global financial crisis and the COVID-19 pandemic crisis. Our results show most fund characteristics and macroeconomic variables are significant after the 2008 global financial crisis and before the COVID-19 pandemic crisis. This is the first empirical study to evaluate these aspects of the performance persistence of SRI funds. Identifying SRI fund performance persistence in different market conditions is important for investors to make better investment decisions, manage risk and build a diversified portfolio. Fund analysts can identify potential problems early and adjust their recommendations. They can enhance their reputation as trusted advisors by providing informed recommendations.