Vaasan yliopiston opinnäytteet

Laskentatoimen ja rahoituksen yksikkö, 2019

Kanniainen, Heidi

Performance of socially responsible indices - Evidence from Europe and the U.S.

Ohjaaja/Valvoja (DI):
Nebojsa Dimic
Kauppatieteiden maisteri
Laskentatoimi ja rahoitus
Master's Degree Programme in Finance
Tutkielman kieli:
Socially responsible investing (SRI) and as well as other related phenomena have rapidly become increasingly popular in the recent decades. People are more aware of environmental issues and want to favour the responsible options in everyday life. A number of socially responsible and ethical funds, indices and investing strategies have emerged, and investors’ knowledge of the topic has increased. This thesis examines the topic of socially responsible investing and investigates whether it is possible to earn abnormal returns when investing in socially responsible indices compared to investments on conventional benchmark indices. The previous literature has found both out- and underperforming of socially responsible investments, and therefore this thesis continues the investigation on the topic.

The data of the thesis covers the years from 2001 to 2018. Moreover, the data has been divided into three different time periods due to the aim of investigating whether there is an effect of markets’ fluctuation on the returns between socially responsible indices and conventional benchmark indices. The Financial crisis of 2008–2009 is an indicator of market downturn. Four different SRI indices and two conventional benchmark indices are used in the investigation. The thesis considers both the U.S. and Europe. The main empirical methods are the Capital asset pricing model (CAMP) and Fama-French three-factor model.

The regression results vary depending on the model used. The main finding is that it is possible to find abnormal returns before the financial crisis at the beginning of the 2000s. During and after the financial crisis the abnormal returns are mainly insignificant with both methods. The results show significant results also for the full period, but these results are mostly driven by the pre-crisis period. The increasing knowledge of the issues related to social responsibility might also be one reason for the insignificant results. Both the previous literature and the empirical results of this thesis find conflicting results, which indicates that the topic still needs further investigation.
Socially responsible investing, SRI, investment performance, market downturn
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