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Individual investors and socially responsible mutual funds
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Business Administration. (Finance)
2018 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This thesis examines the behavior of individual investors towards socially responsible mutual funds. The results are reported in the four self-contained papers.

Paper [I] profiles SR individual investors. An understanding of SR investors' characteristics is important for the development of hypotheses and for understanding the adoption of SR investing. We find evidence indicating, for example, that females, more educated, relatively older individuals, those with higher wealth and those living in municipalities with a higher proportion of SR investors are more likely to hold SR equity mutual funds.

Paper [II] studies the relation between investments of adult children and their parents. The paper explores the importance of parent-child socialization in the formation of prosocial behavior. The study contributes to the understanding of when prosocial behavior is formed and how parent-child relationships influence it. We find evidence that there is a correlation between parents and children in the investment in SR mutual funds and that parental resources and parental experience are influential in the transmission of this prosocial behavior.

Paper [III] documents individual investors' trading behavior in relation to SR equity mutual funds. Results indicate that SR investors are less likely to sell SR than conventional fund as past negative returns decrease. Nonetheless, fund flows of SR and conventional funds are similarly sensitive to past returns. There is, however, evidence that sticky SR investors' fund flows are more sensitive to past positive returns and are less sensitive to past negative returns on their SR than on their conventional funds. Despite sticky SR investors showing behavior in line with values-driven motives, they also appear to be less likely to reinvest in SR than in conventional funds.

Paper [IV] examines whether SR investors are willing to forgo higher returns to invest responsibly.  Based on administrative data on individual investors' equity mutual fund portfolios, it is found that socially responsible (SR) investors forgo return by investing in a socially responsible manner. In comparison with similar conventional investors (in terms of characteristics), SR investors have an equal performance on their non-SR part of their total portfolio, but an inferior performance on their SR part. Analysis of individuals' money flows to funds further indicate that fund flows of SR investors who invest in only SR funds are less sensitive to past returns. Given that investors who value non-financial fund attributes, e.g., ethical or social, may be presumed to care less about the financial performance, the results lend support to an investment behavior, at least partly, driven by prosocial concerns. Taken together, the findings favor the interpretation that some individuals willingly forgo higher financial returns to invest in accordance with their social preferences.

Place, publisher, year, edition, pages
Umeå: Umeå University , 2018. , p. 58
Series
Studier i företagsekonomi. Serie B, ISSN 0346-8291 ; 101
Keywords [en]
individual investors, mutual funds, socially responsible investing, prosocial preference
National Category
Business Administration
Identifiers
URN: urn:nbn:se:umu:diva-150552ISBN: 978-91-7601-884-2 (print)OAI: oai:DiVA.org:umu-150552DiVA, id: diva2:1238072
Public defence
2018-09-07, UB333, Samhällsvetarhuset, Umeå, 13:00 (English)
Opponent
Supervisors
Available from: 2018-08-17 Created: 2018-08-11 Last updated: 2018-08-13Bibliographically approved
List of papers
1. Socially responsible investment among individuals
Open this publication in new window or tab >>Socially responsible investment among individuals
(English)Manuscript (preprint) (Other academic)
Abstract [en]

In this paper we study who among individuals invest in socially responsible (SR) equity mutual funds. The results, based on administrative individual level data, indicate a number of statistically significant results. For example, females, more educated individuals, and those living in municipalities with a higher proportion of SR investors are more likely to hold SR equity funds. Education, however, stands out as the only economically significant determinant. Indeed, holding a PhD degree compared with only having completed compulsory education increases the likelihood of holding SR equity funds by almost 5 percent.

Keywords
household finance, investor behavior, SR investments, prosocial preferences, mutual funds
National Category
Business Administration
Identifiers
urn:nbn:se:umu:diva-150548 (URN)
Available from: 2018-08-11 Created: 2018-08-11 Last updated: 2018-08-13
2. Intergenerational transmission of prosocial values: socially responsible investment among parents and adult children
Open this publication in new window or tab >>Intergenerational transmission of prosocial values: socially responsible investment among parents and adult children
(English)Manuscript (preprint) (Other academic)
Abstract [en]

Novel evidence on the transmission of prosocial values from parents to children is provided by the finding of a positive correlation between the investments of parents and the subsequent investments of their children in socially responsible mutual funds. Although captured parent-child correlations reflect contemporary relationships, they reveal potentially important insight into the origin of heterogeneity in individuals' prosocial behavior. Consistent with research on socialization, the results suggest an influence from both parents, stronger for mothers, and reinforced for parents agreeing in prosocial values, i.e. for individuals with both parents investing in socially responsible mutual funds. Parental resources during an individual's adolescence (financial and parental life experience) are further found to significantly explain individuals' adult prosocial investment behavior. The results are robust to conditioning on a number of alternative explanations.

Keywords
social preferences, individual investor, socialization, socially responsible investing, mutual funds
National Category
Business Administration
Identifiers
urn:nbn:se:umu:diva-150549 (URN)
Available from: 2018-08-11 Created: 2018-08-11 Last updated: 2018-08-13
3. The investment behavior of socially responsible individual investors
Open this publication in new window or tab >>The investment behavior of socially responsible individual investors
2018 (English)In: Quarterly Review of Economics and Finance, ISSN 1062-9769, E-ISSN 1878-4259, Vol. 70, p. 214-226Article in journal (Refereed) Published
Abstract [en]

Using data on individual investors’ equity mutual fund portfolios from 2003 to 2007, this paper describes the behavior of investors in relation to socially responsible (SR) funds. The results suggest that most SR investors rebalance their portfolios slightly more often than conventional investors do, hold potentially more diversified portfolios, and hold a mixed portfolio combining both conventional and SR funds. Further, while SR investors’ buying decisions are similarly sensitive to the past returns on SR and conventional funds, SR investors’ selling decisions are more sensitive to the past negative returns on SR than on conventional funds, which indicates that they are less likely to sell SR than conventional funds as past negative returns decrease. Moreover, the aggregated flows of SR and conventional funds are similarly sensitive to past returns. However, the aggregated flows of SR funds for which the majority of their investors are sticky SR investors are less sensitive to past positive returns. Finally, sticky SR investors’ flows (at the individual level) are more sensitive to the past positive returns and are less sensitive to the past negative returns on SR than on conventional funds. Although these results suggest that sticky SR investors do have values-driven motives for holding SR funds, their flows to SR funds are less persistent than their flows to conventional funds, which indicates that these investors are less likely to reinvest in SR than in conventional funds.

Place, publisher, year, edition, pages
Elsevier, 2018
Keywords
individual investors, equity mutual funds, socially responsible investing
National Category
Business Administration
Identifiers
urn:nbn:se:umu:diva-150551 (URN)10.1016/j.qref.2018.05.014 (DOI)000452539600018 ()2-s2.0-85050148378 (Scopus ID)
Available from: 2018-08-11 Created: 2018-08-11 Last updated: 2019-01-08Bibliographically approved
4. Do socially responsible investors willingly forgo higher returns?
Open this publication in new window or tab >>Do socially responsible investors willingly forgo higher returns?
(English)Manuscript (preprint) (Other academic)
Abstract [en]

Based on administrative data on individual investors' equity mutual fund portfolios, socially responsible (SR) investors are found to forgo higher returns by investing in a socially responsible manner. In comparison with conventional investors who are similar in terms of characteristics, SR investors perform equally in the non-SR part of their total portfolio but have inferior performance in the SR part, which leads to lower performance in the total portfolio. Analysis of individuals' money flows to funds further indicates a lower sensitivity of fund flows toward past returns among SR investors with holdings in only SR funds. Given that investors who value nonfinancial fund attributes (e.g., ethical or social) may be presumed to pay relatively less attention to performance, the results lend support to investment behaviour that is at least partly driven by pro-social concerns. Thus, the results suggest that to invest in accordance with their social preferences, some individuals willingly forgo higher financial returns.

National Category
Business Administration
Identifiers
urn:nbn:se:umu:diva-150550 (URN)
Available from: 2018-08-11 Created: 2018-08-11 Last updated: 2018-08-13

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