A Comparison between the Performance of Ehtical and Conventional US Funds - Do different ethical characteristics matter?

Abstract: This thesis investigates if there are differences in performance and investment styles between ethical and conventional US funds in the time period January 2004 – January 2014. We study both a pooled ethical portfolio and different ethical subgroups divided based on ethical characteristics and do a comparison with matched conventional portfolios. By applying Carhart (1997) four-factor model we control for the market, size, book-to-market ratio and momentum factors and get the risk-adjusted returns for our portfolios. We find no statistically significant difference in performance when examining the pooled ethical portfolio but when studying our ethical subgroups we find a statistically significant underperformance of our environmental friendly funds and our ESG funds, while we find a statistically significant outperformance of our religiously responsible funds. We only find small differences in investment styles between our portfolios. Our results indicate that ethical funds should not be treated as a homogenous group when examining ethical fund performance.