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The investment behavior of socially responsible individual investors
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Business Administration. (Finance)
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. Vol. 70, p. 214-226
Keywords [en]
individual investors, equity mutual funds, socially responsible investing
National Category
Business Administration
Identifiers
URN: urn:nbn:se:umu:diva-150551DOI: 10.1016/j.qref.2018.05.014ISI: 000452539600018Scopus ID: 2-s2.0-85050148378OAI: oai:DiVA.org:umu-150551DiVA, id: diva2:1238065
Available from: 2018-08-11 Created: 2018-08-11 Last updated: 2019-01-08Bibliographically approved
In thesis
1. Individual investors and socially responsible mutual funds
Open this publication in new window or tab >>Individual investors and socially responsible mutual funds
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
individual investors, mutual funds, socially responsible investing, prosocial preference
National Category
Business Administration
Identifiers
urn:nbn:se:umu:diva-150552 (URN)978-91-7601-884-2 (ISBN)
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

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