The cost or benefit of socially responsible investment

Abstract

This paper takes as its starting-point the traditionalTreynor and Mazuy timing model and its conditionalversion and adapts them so as to be able to distinguishbetween the stock picking and Market timing abilities ofethical and conventional fund managers. SevenEuropean countries are analysed and similar results arefound for each country. In general, perverse stockpicking and Market timing abilities are observed forconventional fund managers. With regard to ethical fundmanagers, we find they manage to match theirbenchmark both when it outperforms or underperformsthe conventional benchmark. Furthermore in some casesa positive stock picking ability is found for ethical funds.The more restrictive the definition of the term ethicalfund, the greater the cost of diversification for ethicalmanagers. Moreover for best-in-class funds a negativestock picking ability is registered, and in relation withMarket timing, we find that they are more influenced bytheir benchmark than the rest of the ethical funds.