Socially responsible mutual funds in the era of financial turmoil

This study examines the performance of socially responsible mutual funds during the January 2008 to March 2010 period. During that time the stock market fell off a cliff and then went through a rapid recovery. The authors use both regression and non-parametric methods in the study. Performance of the exchange traded fund (ETF) iShares MSCIKLD 400 Social (DSI), which mimics the performance of the Domini 400 social index, is superior to that of the Center for Research in Security Prices (CRSP) market index. Performance of the fund-of-funds "socially responsible portfolio" that the authors created, however, is inferior to that of the fund-of-funds "control portfolio" the authors created. Though the "social portfolio" slightly underperformed, regression results from both the Carhart four-factor model and a model with ad hoc regressors indicate that the "social" factor does not significantly impact fund returns. These observations suggest that the performance difference between the two portfolios possibly results from differences in their exposure to the common risk factors.