The 'smart money effect' among socially responsible mutual fund investors

摘要

In this paper, I study investors' selection skills for a broad (576 funds) and updated (January 2004 to May 2018) sample of socially responsible (SR) mutual funds in the US market. In general terms, I obtain a positive relationship between fund flows and subsequent financial performance. This positive relationship is conducted by the bad financial performance of funds suffering net outflows, and it is stronger for non-institutional funds and for funds with a low minimum investment. In addition, I find in general terms that fund flows in US SR funds are persistent, and they are positively related to lagged returns. All these results together seem to indicate that this positive relationship is not driven by investors' selection skills. Moreover, I observe that religious fund investors are minimally influenced by lagged returns and show the worst selection skills in the US SR fund market. Furthermore, environmental fund investors present the strongest positive relationship between flows and subsequent financial performance, and the flows for these funds are not persistent. When analysing other SR fund markets, I observe in general terms a lack of relationship between fund flows and subsequent financial performance.