Measuring Investors' Socially Responsible Preferences in Mutual Funds

The aim of this study is to analyze investor behavior towards socially responsible mutual funds. The analysis is based on an experimental study where a sample of individuals takes investment decisions under different parameters of information about the investment alternatives and expected returns. I...

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Bibliographic Details
Published in:Journal of business ethics 2011-10, Vol.103 (2), p.305-330
Main Authors: Barreda-Tarrazona, Iván, Matallín-Sáez, Juan Carlos, Balaguer-Franch, Ma Rosario
Format: Article
Language:English
Subjects:
Business and Management
Business Ethics
C91
Comparative analysis
Corporate social responsibility
Education
Ethics
Expected returns
experimental method
Experimental methods
Financial investments
Financial portfolios
G23
Information
Investment decisions
Investment funds
Investment returns
Investment risk
Investment trusts
Investments
Investor behavior
Investors
M14
Management
Mutual funds
Philosophy
Preferences
Professional ethics
Quality of Life Research
Risk aversion
Social responsibility
Social responsibility of business
Socially responsible investing
socially responsible investment
Socially responsible mutual funds
Sociology
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Summary:The aim of this study is to analyze investor behavior towards socially responsible mutual funds. The analysis is based on an experimental study where a sample of individuals takes investment decisions under different parameters of information about the investment alternatives and expected returns. In the experiment, each participant decides how to distribute an investment budget between two funds, returns on which are uncertain and change over time. Two treatments are conducted, each providing a different degree of information on the socially responsible (SR) character of one of the two investment alternatives. The results obtained suggest that although individuals' criteria for investment are essentially guided by returns and diversification, participants invest significantly more in a fund when they are explicitly informed about its SR nature. In particular, participants who declare being concerned about SR actually invest significantly more in the SR alternative. Furthermore, the level of SR faithfulness among a small group of investors is such that they invest the main share of their budget in the SR fund, even when the return differential is highly unfavorable. Providing clear information about the SR characteristics of an investment is crucial to help investors express their preferences.
ISSN:0167-4544
1573-0697
DOI:10.1007/s10551-011-0868-z