This paper investigates the fund performance, fund characteristic, fund flow ,and the impact of subprime loan crisis on fund flow volatility respectively. In terms of fund performance, the result shows that there is no significant difference in performance between green funds and conventional funds. As for fund characteristics, CAPM model reveals that green funds are more sensitive to market risk than conventional funds with the 25th and 50th percentile. Four-factor model exhibits that green funds are more sensitive to size factor compared to conventional funds. On the
other hand, green funds are less sensitive to the momentum factors than conventional funds.
In consideration of age, fund flow volatility is much lighter when mutual funds are mature. After conducting the OLS regression which is described in Bollen (2007), there exists asymmetric phenomenon for green funds in the “All”, “Young”, and
“Mature” categories. That is, fund flows of green funds are significantly related to the lagged positive return but not significantly associated with lagged negative returns.
When discussing the impact of subprime loan crisis on fund flow volatility, the result is consistent with the previous assumption, which states that the fund flow volatility of green funds should be lighter than that of conventional funds owing to green investors’ concerns for the environment.
We can conclude that green fund investors are really socially responsible due to three factors. First of all, the fund flow volatility of green funds is significantly lither than that of conventional funds in the “All”, “Young” and “Mature” categories.
Secondly, fund flows of green funds are significantly related to the lagged positive returns but are not significantly associated with the lagged negative returns. This phenomenon implies that green investors seek good performance due to human nature to earn abnormal rewards. Additionally, they consider investments as an environmental consumption. Thirdly, during the period of financial crisis, the fund flow volatility of green funds is significantly lighter than that of conventional funds.
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Consequently, we can rationally infer that green fund investors are really socially responsible on the basis of above factors.
However, there is still limitation in this paper. This paper selects green funds from SIF, but there must be some green funds which are not defined in SIF. Due to lacking of sufficient database of green funds, this paper collects information from SIF because SIF owns clear categories when screening for funds. Therefore, this paper can choose green funds based on the “environmental” category defined by SIF.
In addition, general momentum-driven investors in green funds are considered as those people who invest in the “climate/ clean technology” subset of the “environment”
category, but this paper defines green funds as those funds with positive or restricted investment in the “environment” category which includes “climate/clean technology”¸
“pollution/toxic”, and “environment/other” subsets. As a result, future researchers can discuss the funds which invest in the “climate/ clean technology” subset of the
“environment” category to examine if those investors are really socially responsible
or just active to pursue superior performance?
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Table 1: Average of Equally-Weighted Percentage Daily Returns for Green Funds and Conventional Funds (%)
Listed is the average of equally-weighted percentage daily returns of green and conventional mutual funds in the CRSP database for ten years from 2000 to 2009. The returns are calculated by net asset value including reinvested dividends from one period to the next. The p-value is calculated for the differences between the two groups.
Year Green Conventional Diff(Green-Conventional) P-value
2000 0.2792 0.1557 0.1235 0.9516
2001 0.0789 0.0621 0.0168 0.7237
2002 0.0019 0.0015 0.0004 0.3907
2003 -0.0294 -0.0213 -0.0081 0.4510
2004 -0.0632 -0.0431 -0.0201 0.5953
2005 0.0930 0.0802 0.0128 0.3797
2006 0.0431 0.0368 0.0064 0.7930
2007 0.0192 0.0251 -0.0059 0.8236
2008 0.0451 0.0431 0.0020 0.3935
2009 0.0227 0.0268 -0.0040 0.6370
31 Table 2: Fund Characteristics for Green funds and Conventional Funds
Listed are values of the first, second and third quartiles of OLS parameter estimators for green and conventional mutual funds in the CRSP database. Panel A shows the results of the Capital Asset Pricing Model. Panel B shows the results of the four-factor model.
Panel A: CAPM Model
Table 2(Continued): Significance of Parameter Estimator
Listed is the Significance of Parameter Estimator for Green and Conventional funds. Panel A shows the results of CAPM. Panel B shows the results of Four-Factor Model.
Panel A: CAPM Model
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Table 3: Monthly Fund Flow Volatility and Quantity Comparisons
Listed are values of the first, second and third quartiles of volatility of percentage monthly fund flows for Green, and Conventional mutual funds in the CRSP database from January 1989 to September 2009. “ ean” refers to the average quantity of percentage dollar flows. The p-value is calculated for the differences of percentage dollar flows between the two categories. The estimations must include at least 12 months of fund flow data.
all funds young
funds
mature funds
Green Conventional Green Conventional Green Conventional
25th 0.0055 0.0060 0.0079 0.0085 0.0002 0.0005
50th 0.0123 0.0155 0.0151 0.0202 0.0005 0.0020
75th 0.0311 0.0330 0.0314 0.0381 0.0010 0.0082
Mean 0.0249 0.0275 0.0268 0.0315 0.0012 0.0095
p-value <0.0001 <0.0001 <0.0001
Table 4: OLS Regression Results
Listed are OLS parameter estimators of coefficients of the following regression from 1989 to 2009. The “F-value” tests for the differences between the coefficients of variances. And the p-value is calculated for the difference of percentage dollar flows between the two categories.
All Funds Young Mature
Estimator P-Value Estimator P-Value Estimator P-Value 0.0083 <0.0001 0.0214 <0.0001 -0.0019 <0.0001 0.0045 0.0077 0.0063 0.0565 0.0050 0.0010 0.1275 <0.0001 0.1476 <0.0001 0.0465 <0.0001 0.1871 <0.0001 0.1809 0.0310 0.1328 0.0026 0.0423 <0.0001 0.0642 <0.0001 0.0620 <0.0001 0.0105 0.7804 0.0478 0.4706 0.0285 0.4333
R-Square 0.0010 0.0011 0.0008
F-Value F-Value F-Value
1.62 0.2029 0.16 0.6914 3.88 0.0503
0.71 0.4003 0.06 0.8054 0.84 0.3593
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Table 5: Fund Volatility Before and During Subprime Loan Crisis
Listed are the mean as well as standard deviation of fund flow before and during the financial crisis for green and conventional mutual funds. In addition, it also exhibits the difference in standard deviation in the “Before” and “During” sub-periods.
Green Conventional Difference in
S.D(Green-Conventional) Mean Standard
Deviation
Mean Standard Deviation
Mean Standard
Deviation
p-value Monthly
Fund Flow
Before 0.0120 0.1362 0.0039 0.1520 -0.0325 0.0561 0.0295
During 0.0137 0.1037 0.0073 0.1283 -0.0383 0.0539 0.0078
Figure 1: Total Quarterly Financial investment (US$ billions) in clean energy 2004 to 2009 from world economic forum (WEF). The substantial improvement in the second season is involved with the investment of wind industry in China, wind farms in the UK, and solar thermal electricity generation plants in Spain.
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Figure 2: Growth in Total Net Assets for Green and Conventional funds
Below picture is the total net asset (in USD millions) for green and conventional funds from 1971 to 2009.
0 2000000 4000000 6000000 8000000 10000000 12000000 14000000
0 5000 10000 15000 20000 25000
1971 1983 1985 1989 1992 1994 1996 1999 2001 2003 2005 2007
Green Conventional
Figure 3: Performance of Mutual Fund for Green and Conventional Funds Depicted is the average monthly return of two groups from 1998 to 2009.
-0.002 -0.0015 -0.001 -0.0005 0 0.0005 0.001 0.0015 0.002 0.0025 0.003 0.0035
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Green Conventional
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Figure 4: Fund Flow of Mutual Fund for Green and Conventional funds
Depicted is the average monthly fund flow of two categories from 1982 to 2009.
-0.04 -0.02 0 0.02 0.04 0.06 0.08 0.1
Green Conventional
Figure 5: Fund Performance Volatility Before and During Subprime Loan Crisis for Green and Conventional funds. Depicted is the daily standard deviation of fund performances for two categories from 2006 to 2009.
0 0.005 0.01 0.015 0.02 0.025 0.03
2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009
Green Conventional
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Figure 6: Fund Flow Volatility Before and During Subprime Loan Crisis for Green and Conventional funds. Depicted is the monthly standard deviation of fund flows for two categories from 2006 to 2009.
0 0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16 0.18 0.2
Green Conventional