The Financial Performance Of Socially Responsible Investment Funds In Greater China

Socially responsible investing is becoming a fast trend in nowadays financial investment world and has generated lots of research in this area, but not a single paper has been done on the subject in China. In this paper we aim to extend previous research on ethical funds performance and to present the first results concerning Chinese ethical funds, using a database of 49 socially responsible mutual funds in China, Hong-Kong and Taiwan. We analyze the funds monthly returns during 2005-2010 by applying conventional tools of mutual funds performance evaluation analysis, such as Jensen's one-factor model, Fama and French three-factor model, or Sharpe and Treynor ratios. We compare the performance of China SRI funds with a sample of matched conventional funds, before studying the Hong-Kong and Taiwan ethical market. We find that the two SRI funds in China, depending on the chosen benchmark, either outperform the market or present neutral performance, but that both significantly outperform their conventional counterparts. We also find evidence that the SRI funds'manager market timing abilities are either as good as their conventional counterpart, or better. Evidence from applying regression models suggest that most Hong-Kong SRI funds do not show significant outperformance or underperformance of the market, however, we find that Taiwan's SRI funds show significant underperformance, and move against the market, albeit slightly. When comparing the three geographical groups of SRI funds in the recent two years, we find that Hong-Kong's and mainland China's SRI funds'Sharpe ratios and Treynor ratios'rankings follow a general upward trend, but Taiwan's SRI funds'rankings follow a slight downward trend. Moreover, we have also found that the three groups'funds tend to stay in their risk class.