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.