Doing good while making money: Individual investor participation in socially responsible corporations

Abstract

Purpose

The purpose of this paper is to examine the performance of exchange traded funds (ETFs) that hold corporate social responsibility (CSR) stocks and compare their risk-return characteristics with the market.

Design/methodology/approach

The authors use the Sharpe ratio and Jensen’s α from multivariate regressions to perform a multi-country study to examine how CSR-oriented ETFs perform against global, national, and regional market indexes. The authors examine paired groupings of each CSR-oriented ETF with its corresponding index after appropriate risk adjustments.

Findings

The authors find that CSR-oriented ETFs’ perform similar to their market indexes. Thus, individual investors can earn comparable returns while investing in CSR-oriented ETF, indicating that they can indeed do “good” while not missing out on returns. However, the authors also find that unlike the previously documented buffer effects that CSR-oriented firms enjoy, CSR-oriented ETFs do not outperform their market indexes during economic downturns. Thus, CSR-oriented ETFs are not safe havens for individual investors during times of economy-wide slumps.

Research limitations/implications

The main limitation of this study is its limited sample size. Because the authors use novel hand-collected data, the authors have 11 CSR-focused ETFs with their corresponding indexes.

Originality/value

To the authors’ knowledge, this is the first study that examines individual investor participation using CSR-oriented ETFs. The study is made possible by hand-collected data on CSR-related ETFs which identify in detail the composition of each of these ETFs, and the findings highlight how individual investors can promote CSR while also making sound investments.

Citation

Chakrabarty, B., Lee, S.B. and Singh, N. (2017), "Doing good while making money: Individual investor participation in socially responsible corporations", Management Decision, Vol. 55 No. 8, pp. 1645-1659. https://doi.org/10.1108/MD-01-2017-0005