Sustainable Mutual Funds and Investor Behavior: A Study on Swedish Sustainable Mutual Equity Funds

Abstract: In this thesis, we examine the financial performance, the performance-sensitivity of investors, and the volatility of investor fund flow of Swedish sustainable mutual equity funds. To analyze the financial performance of the funds, we use the Capital Asset Pricing Model, the Fama-French three-factor model and Carhart's four-factor model, and to assess the difference in financial return between sustainable and conventional funds, we include a dummy variable. To analyze the relationship between flow and performance, we use a linear regression model where we regress annual fund flow to performance lagged one year. To analyze volatility, we measure the standard deviation of monthly fund flows. Regarding investor behavior, we create a matched sample in order to control for differences such as age, size and risk exposure of the funds. We find evidence that sustainable funds outperform their factor benchmark however, we also find evidence that sustainable funds perform worse than conventional funds. Furthermore, we find strong indications that investors in mature sustainable funds are less sensitive to negative returns than in conventional funds. We could not find evidence that the volatility of fund flow of sustainable funds is significantly different than the volatility of conventional funds.