Abstract
Socially responsible investing (SRI) reap the benefits of a social consensus and is often presented as a solution to conciliate finance and sustainable development. This article investigates the performance and resilience of both socially responsible and conventional funds listed in the Japan Investment Trust Association (JITA) during two economic shocks (the U.S. election and Brexit) in 2016. To see the immediate reaction in fund performance around different shocks, an event study with market model using ordinary least square (OLS), an event study with market model using exponential generalized autoregressive heteroscedasticity (EGARCH) and an event study with Fama–French multi-factor model was used to avoid common features of return data such as non-normality, heteroscedasticity, and cross-correlation. This study found that the recent U.S. election had a significant positive effect whereas the Brexit referendum event had a significant negative shock on fund returns in Japan around the event window. It is evident from the empirical findings that, compared to conventional funds, socially responsible funds were more resilient to uncertainty around the recent U.S. presidential election whereas conventional funds were more sensitive during the Brexit referendum. The important implications of these findings are the optimal strategies of institutional or individual investors who have direct or indirect exposure to the fund volatility risk in Japan.
Highlights
In the last few decades, socially responsible investing (SRI), which focuses on ethical values, environmental protection, social issues, good governance, etc., has remarkably drawn attention to individual and private investors and to researchers
This study investigated the performance and resilience of both SRI and conventional funds in
Empirical results obtained using the market model without EGARCH, the market model with EGARCH, and the Fama–French three-factor models showed that the U.S election had a significant positive effect whereas the Brexit referendum event had a significant negative impact on the performance of the fund returns in Japan around the event window
Summary
In the last few decades, socially responsible investing (SRI), which focuses on ethical values, environmental protection, social issues, good governance, etc., has remarkably drawn attention to individual and private investors and to researchers. According to the Japan Sustainable Investment Forum (JSIF), total net assets of socially responsible funds were around JPY 0.8 trillion at the end of December 2011, whereas the total sustainable investment in 2018 (Figure 2), an increase of 2012 balance. Green finance provides an opportunity for achieving environmentally sustainable innovation pathways but it faces some institutional and financial criticalities such as uncertainty about public policies, minimum involvement of financial suppliers, Sustainability 2020, 12, 540 short-term financial instruments, and the knowledge gap of financial options and technical expertise within firms [7].
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