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Do socially responsible investment funds sell losses and ride gains? The disposition effect in SRI funds

Lookup NU author(s): Beatrice Boumda, Professor Darren Duxbury

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This work is licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0).


Abstract

© 2021 by the author. Licensee MDPI, Basel, Switzerland. An increasing percentage of the total net assets under professional management is devoted to ethical investments. Socially responsible investment (SRI) funds have a dual objective: Building an investment strategy based on environmental, social, and corporate governance (ESG) screens and providing financial returns to investors. In the current study, we investigate whether this dual objective has an influence on the behavior of mutual fund managers in the realization of gains and losses. Evidence has shown that most investors in SRI funds invest in those funds primarily because of their social concerns. If the motivations of SRI managers align with those of SRI investors, SRI managers might then have more incentives than conventional managers to hold onto losing stocks if they feel their social value compensates for the economic loss. We hypothesize that SRI managers would be less prone to the disposition effect than conventional managers. Pertaining to the disposition effect, we do not find evidence of a difference in the behavior of SRI fund managers compared with that of conventional fund managers. Our results hold, even when considering market trends, management structure, gender, and prior performance.


Publication metadata

Author(s): Boumda B, Duxbury D, Ortiz C, Vicente L

Publication type: Article

Publication status: Published

Journal: Sustainability

Year: 2021

Volume: 13

Issue: 15

Online publication date: 21/07/2021

Acceptance date: 19/07/2021

Date deposited: 12/08/2021

ISSN (electronic): 2071-1050

Publisher: MDPI AG

URL: https://doi.org/10.3390/su13158142

DOI: 10.3390/su13158142


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