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Socially responsible investment fund performance: the impact of screening intensity
Author(s) -
Lee Darren D.,
Humphrey Jacquelyn E.,
Benson Karen L.,
Ahn Jason Y. K.
Publication year - 2010
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.2009.00336.x
Subject(s) - diversification (marketing strategy) , investment (military) , systematic risk , investment performance , risk–return spectrum , economics , actuarial science , return on investment , business , econometrics , financial economics , microeconomics , production (economics) , marketing , portfolio , politics , political science , law
Perhaps the most common criticism of socially responsible investment funds is that imposing non‐financial screens restricts investment opportunities, reduces diversification efficiencies and thereby adversely impacts performance. In this study we investigate this proposition and test whether the number of screens employed has a linear or curvilinear relation with return. Moreover, we analyse the link between screening intensity and risk. Screening intensity has no effect on unadjusted (raw) returns or idiosyncratic risk. However, we find a significant reduction in α of 70 basis points per screen using the Carhart performance model. Increased screening results in lower systematic risk – in line with managers choosing lower β stocks to minimize overall risk.