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Primary Article

Socially Responsible Investments

Goody-Two-Shoes or Bad to the Bone?

Eric C Girard, Hamid Rahman and Brett A Stone
The Journal of Investing Spring 2007, 16 (1) 96-110; DOI: https://doi.org/10.3905/joi.2007.681827
Eric C Girard
Hickey Chair in business and associate professor of finance at Siena College in Loudonville, NY.
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  • For correspondence: egirard@siena.edu
Hamid Rahman
Professor of finance at Alliant International University in San Diego, CA.
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  • For correspondence: hrahman@alliant.edu
Brett A Stone
An assistant professor of accounting at the University at Albany (SUNY) in Albany, NY.
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  • For correspondence: bstone@uamail.albany.edu
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Abstract

Using a database containing 117 U.S. socially responsible mutual funds (SRMFs), we review and extend previous research on ethical mutual fund managers' performance in terms of selectivity, net selectivity, diversification and market timing. By using appropriate style benchmarks, we solve the benchmark problem from which most prior ethical studies suffered. We find evidence of significant differences in net selectivity between ethical and conventional funds for the 1984-2003 period. Socially responsible mutual fund managers show poor selectivity, net selectivity and market timing ability as compared to Lippers active benchmark indices. Diversification is significantly different from zero, indicating that SRMFs bear a cost for their lack of diversification. We also find that the size of the fund has nothing to do with its performance. However, older funds tend to have worse selectivity, as well as the highest cost for a lack of diversification. Finally, we observe that SRMFs with the most ethical screens have the least selectivity and net selectivity.

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Vol. 16, Issue 1
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Socially Responsible Investments
Eric C Girard, Hamid Rahman, Brett A Stone
The Journal of Investing Feb 2007, 16 (1) 96-110; DOI: 10.3905/joi.2007.681827

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Socially Responsible Investments
Eric C Girard, Hamid Rahman, Brett A Stone
The Journal of Investing Feb 2007, 16 (1) 96-110; DOI: 10.3905/joi.2007.681827
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