Volume 24, 2013
Proceedings of the Twenty-Fourth Annual Meeting
Business Cycle Effects on Socially Responsible Investment
Evidence from Two Business Cycles 1991 to 2009
Socially responsible investing (SRI) is a significant part of the U.S. equity market. Studies of the relationship between social performance and financial
performance have not considered the effect of business cycles, which is the main topic of this study. An SRI Fund of Funds is compared to the S&P 500 over two complete business cycles from 1991 to 2009. The SRI Fund of Funds had financial performance comparable to the S&P 500 during market contractions, but underperformed during market expansions. The factors associated with SRI returns are examined using both the Fama-French 3-Factor Model and the Carhart 4-Factor Model. Momentum appears to be of special importance during market expansions. The implications of these findings for the field of SRI are examined.