Hidden Gem or Fool's Gold: Can passive ESG ETFs outperform the benchmarks?

A. Dumitrescu*, Jesse Järvinen, Mohammed Zakriya

*Corresponding author for this work

Research output: Indexed journal article Articlepeer-review

6 Citations (Scopus)

Abstract

Using a unique and extensive dataset of 121 socially responsible investing (SRI) equity exchange-traded funds (ETFs) from January 2010 to December 2020, this study examines how passive SRI ETFs perform compared with their non-SRI benchmarks composed of S&P500 ETFs. Over the full sample period, our results show that an equally weighted SRI ETF portfolio underperforms its benchmark portfolio. Notably, we do not find significant differences in the two portfolios’ performance in the second half of our sample period. However, in the last two years, the SRI ETF portfolio significantly outperforms the benchmark. For the SRI investment strategies, we show that positive screening (or inclusion) rather than negative screening (or exclusion) can beat the benchmark portfolio. In particular, environmental inclusion screen provides significantly higher abnormal returns. Finally, we find that SRI ETFs’ performance can be explained by increasing industry competition and declining market concentration.

Original languageEnglish
Article number102540
Number of pages16
JournalInternational Review of Financial Analysis
Volume86
DOIs
Publication statusPublished - Mar 2023
Externally publishedYes
EventEuropean Financial Management Association Annual Meeting (EFMA 2022): Hidden gem or fool's gold: Can passive ESG ETFs outperform to the benchmarks? - Rome, Italy
Duration: 29 Jun 20222 Jul 2022

Keywords

  • ESG
  • ETFs
  • SRI
  • Socially responsible investments
  • Sustainability

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