The relationship of fund outflows and negative performance in socially responsible mutual funds : empirical evidence from Norway, Sweden, and Denmark

Abstract

This study compares the sensitivity of money flows toward past performance between Socially Responsible (SR) and conventional mutual funds in Norway, Sweden, and Denmark from 2007 to 2016. The data is analyzed using several Ordinary Least Squares (OLS) regressions. We first apply raw monthly returns and then both raw and risk-adjusted long-term returns as performance measures. No empirical evidence was found to suggest that SRI outflows are less sensitive to past negative monthly performance than conventional fund outflows. On the other hand, the empirical study indicates that SRI inflows are less sensitive to previous positive monthly returns than conventional inflows. We contribute to the existing mutual fund literature by examining the relationship of fund flows and past returns in the Scandinavian SR mutual fund industry. We also contribute to the current literature by applying monthly data and longer returns of 3 years. Regarding long-term performance, we cannot find any empirical evidence that implies that SRI money flows are less responsive to past performance than conventional flows. It seems that for Scandinavian responsible funds the flow-performance relation is not so different than that of conventional funds, which differs from the results of previous studies.