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Measuring Investors’ Socially Responsible Preferences in Mutual Funds

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Abstract

The aim of this study is to analyze investor behavior towards socially responsible mutual funds. The analysis is based on an experimental study where a sample of individuals takes investment decisions under different parameters of information about the investment alternatives and expected returns. In the experiment, each participant decides how to distribute an investment budget between two funds, returns on which are uncertain and change over time. Two treatments are conducted, each providing a different degree of information on the socially responsible (SR) character of one of the two investment alternatives. The results obtained suggest that although individuals’ criteria for investment are essentially guided by returns and diversification, participants invest significantly more in a fund when they are explicitly informed about its SR nature. In particular, participants who declare being concerned about SR actually invest significantly more in the SR alternative. Furthermore, the level of SR faithfulness among a small group of investors is such that they invest the main share of their budget in the SR fund, even when the return differential is highly unfavorable. Providing clear information about the SR characteristics of an investment is crucial to help investors express their preferences.

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Acknowledgments

The article has been greatly improved thanks to comments by Simone Alfarano, Eva Camacho, Nikolaos Georgantzís, Roberto Pascual, Marina Pavan and Gerardo Sabater, two anonymous referees of this Journal and Conference participants at EABIS 2009 and Loyola University 2009. We also wish to thank Raquel Barreda, Adriana Breaban, Irinel Benoni, Margarita Rohr and Isabel Vidal for their excellent research support and Yolanda Delgado for her collaboration. The experiments were made possible thanks to financial help from the Spanish Ministry of Education (SEJ2007-67204/ECON), the Generalitat Valenciana (GV/2007/097) and Fundació Caixa Castelló/Bancaixa (P1-1B2009-54). I. Barreda acknowledges financial support by the Spanish Ministry of Science and Innovation (ECO2008-04636/ECON) and the José Castillejo Grant for visiting ESRI Dublin in 2009.

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Authors and Affiliations

  1. LEE & Economics Department, Universitat Jaume I, Av. Sos Baynat s/n, 12080, Castellón, Spain

    Iván Barreda-Tarrazona

  2. Finance and Accounting Department, Universitat Jaume I, Av. Sos Baynat s/n, 12080, Castellón, Spain

    Juan Carlos Matallín-Sáez & Mª Rosario Balaguer-Franch

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  1. Iván Barreda-Tarrazona
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  2. Juan Carlos Matallín-Sáez
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  3. Mª Rosario Balaguer-Franch
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Correspondence to Iván Barreda-Tarrazona.

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Barreda-Tarrazona, I., Matallín-Sáez, J.C. & Balaguer-Franch, M.R. Measuring Investors’ Socially Responsible Preferences in Mutual Funds. J Bus Ethics 103, 305–330 (2011). https://doi.org/10.1007/s10551-011-0868-z

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