Time-varying fund manager skills of socially responsible investing (SRI) funds in developed and emerging markets

• Published in: Research in international business and finance 2023-01, Vol.64, p.101877, Article 101877
• Main Author: Jitmaneeroj, Boonlert
• Format: Article
• Language: English
• Subjects: Fund manager skills; Performance persistence; Selection ability; Socially responsible investing; Timing ability
• ISSN: 0275-5319; 1878-3384
• DOI: 10.1016/j.ribaf.2023.101877

We examine stock selectivity and timing abilities in the market-wide return, volatility and liquidity of SRI fund managers. We find that multi-dimensional fund manager skills are time-varying and persistent in the short run, with developed market funds exhibiting longer persistence in all dimensions. Fund manager skills tend to be affected by fund characteristics (i.e., expense ratio, fund size, turnover and management tenure) and market characteristics (i.e., ESG market capitalization, mandatory ESG regulation and 10–2 yield spread). Fund managers of developed (emerging) market funds outperform (underperform) the market indices. For both fund types, fund managers possess exceptional volatility and liquidity timing despite poor return timing. Moreover, fund managers focus more (less) on timing the market’s return and less (more) on picking stocks when the prospect of recession keeps increasing (decreasing). Interestingly, if fund managers attempt to time the market-wide return or liquidity, stock selectivity will be worsened by their timing behavior. [Display omitted] •SRI fund manager skills are time-varying and persistent in the short run.•Developed market (emerging market) funds outperform (underperform) the market index.•Stock selectivity is worsened by the return and liquidity timing behavior.•Mandatory ESG regulations enhance stock selectivity.•Fund managers focus more on timing, not selectivity, if prospects of recession loom.