We thank the Social Investment Forum for providing mutual fund screening data and Eugene Fama and Kenneth French for allowing free and open access to their data sets. We also thank an anonymous referee and the editor for comments on an earlier version of this paper.
Socially responsible investment fund performance: the impact of screening intensity
Article first published online: 3 FEB 2010
© The Authors. Journal compilation © 2010 AFAANZ
Accounting & Finance
Volume 50, Issue 2, pages 351–370, June 2010
How to Cite
Lee, D. D., Humphrey, J. E., Benson, K. L. and Ahn, J. Y. K. (2010), Socially responsible investment fund performance: the impact of screening intensity. Accounting & Finance, 50: 351–370. doi: 10.1111/j.1467-629X.2009.00336.x
- Issue published online: 24 MAY 2010
- Article first published online: 3 FEB 2010
- Received 20 April 2009; accepted 27 October 2009 by Robert Faff (Editor).
- Socially responsible investment;
- Socially responsible investment funds;
- Mutual funds
Perhaps the most common criticism of socially responsible investment funds is that imposing non-financial screens restricts investment opportunities, reduces diversification efficiencies and thereby adversely impacts performance. In this study we investigate this proposition and test whether the number of screens employed has a linear or curvilinear relation with return. Moreover, we analyse the link between screening intensity and risk. Screening intensity has no effect on unadjusted (raw) returns or idiosyncratic risk. However, we find a significant reduction in α of 70 basis points per screen using the Carhart performance model. Increased screening results in lower systematic risk – in line with managers choosing lower β stocks to minimize overall risk.