Why Do Investors Hold Socially Responsible Mutual Funds?

Why Do Investors Hold Socially Responsible Mutual Funds?

  • ARNO RIEDL
  • PAUL SMEETS

Article first published online: 14th September 2017 DOI: 10.1111/jofi.12547

Abstract


To understand why investors hold socially responsible mutual funds, we link administrative data to survey responses and behavior in incentivized experiments. We find that both social preferences and social signaling explain socially responsible investment (SRI) decisions. Financial motives play less of a role. Socially responsible investors in our sample expect to earn lower returns on SRI funds than on conventional funds and pay higher management fees. This suggests that investors are willing to forgo financial performance in order to invest in accordance with their social preferences.

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