Financial Performance of Ethical Investments

Ida Hammenfors & Ragnhild Hafskjær

Student thesis: Master thesis


The study aims to investigate and compare the risk-adjusted performance of ethical mutual funds on the American and Scandinavian market. The study is based on the two contradictory theories that ethical funds either underperform conventional funds by operating in a constrained investment universe, or outperform by signaling good managerial skills and mitigating risk through ethical screening. Ethical investment is a growing segment in the financial industry and a greater focus is put on environmental, social and governance factors when making investment decisions. The concept of ethical investment is not determined by a uniform definition, but is dependent on the specific investor’s ethical views and filter for securities selection. Hence, classification of ethical mutual funds has been identified through regional databases that provide list of funds labeled as ethical. A total of 164 ethical funds are sampled and matched with a conventional reference fund to analyze and compare performance. The findings have been conducted through regression analyses on monthly returns using several multifactor models derived from the Capital Asset Pricing Model. The fund performance is measured both on a portfolio level and on an individual fund level in order to test the robustness of the results. Furthermore, the development of ethical performance trough time and during the global financial crisis of 2007/2008 is examined. The results obtained from analyzing the difference in performance of ethical and conventional funds in the period of January 2005 to February 2016 are inconclusive. However, a majority of the results indicating that the market generally does not price ethical funds differently from the nonethical investment strategies. The results from the Norwegian market are an exception, were ethical funds significantly out-perform the conventional funds.

EducationsMSc in Advanced Economics and Finance, (Graduate Programme) Final ThesisMSc in Finance and Investments, (Graduate Programme) Final Thesis
Publication date2017
Number of pages140