Socially responsible investments: doing good while doing well in developed versus emerging markets?

• Published in: Research in international business and finance Vol. 69; p. 102229
• Main Authors: Lestari, Jenjang Sri, Frömmel, Michael
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01-04-2024
• Subjects: BRICS; Current holdings; Developed markets; Emerging markets; Historical holdings; Look-ahead bias; Mutual fund holdings; Socially Responsible Investment (SRI); Survivorship bias; Socially Responsible Investment (SRI); BRICS; A13; Mutual fund holdings; G11; Survivorship bias; Emerging markets; Developed markets; Current holdings; Historical holdings; Look-ahead bias
• ISSN: 0275-5319; 1878-3384
• DOI: 10.1016/j.ribaf.2024.102229

We investigate the performance of Socially Responsible Investments (SRI) in both developed and emerging countries. We do so by examining the performance of self-constructed equity portfolios based on SRI's mutual funds' current and historical holdings. Based on the current holdings, the SRI equity portfolios from emerging and developed countries significantly outperform their benchmarks, except for the Japanese stock portfolio. We mitigate the current holdings approach's potential look-ahead and survivorship bias by employing the historical holdings approach. The results change dramatically in developed markets: the outperformance of SRI is not significant in the U.S. – the dominant developed markets in the sample – and Japan. In emerging markets, the SRI's outperformance remains significant. It outperforms in both BRICS and Non-BRICS, and in terms of income, it consistently outperforms in the markets of middle-income countries.
[Display omitted]
•SRI’s performance is assessed using mutual funds’ current and historical holdings.•Using current holdings: SRI outperforms in emerging and developed markets except for Japan.•The current holdings approach is susceptible to the look-ahead and survivorship bias. The historical holdings approach alleviates these biases.•With historical holdings in the developed markets, the SRI outperformance is insignificant in the major markets, i.e., the US and Japan.•However, SRI still outperforms in emerging markets (BRICS and Non-BRICS).