Working Paper: NBER ID: w31248
Authors: Shangchen Li; Hongxun Ruan; Sheridan Titman; Haotian Xiang
Abstract: We study ESG and non-ESG mutual funds managed by overlapping teams. We find that non-ESG mutual funds include more high ESG stocks after the creation of an ESG sibling, and the high ESG stocks they select exhibit superior performance. The low ESG stocks selected by ESG funds also exhibit superior performance and despite being more constrained, the ESG funds outperform their non-ESG siblings. The latter result is consistent with fund families making choices that favor ESG funds. Specifically, ESG funds tend to trade illiquid stocks prior to their non-ESG siblings and get preferential IPO allocations.
Keywords: ESG; mutual funds; investment performance
JEL Codes: G14; G2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Initiation of an ESG fund (G23) | Increase in the average ESG score of non-ESG sibling funds (G23) |
| Managers' attention to high ESG stocks (G34) | Better selection performance for these stocks in non-ESG funds (G23) |
| Managers' attention to low ESG stocks (G39) | Worse performance for low ESG stocks in non-ESG funds (G41) |
| ESG funds (G23) | Underperformance compared to non-ESG siblings (D29) |
| Fund families execute trades for ESG funds before non-ESG funds (G23) | Favor ESG funds (G23) |
| Fund families allocate underpriced IPOs to ESG funds (G23) | Favor ESG funds (G23) |
| ESG funds (G23) | Increased total mutual fund flows (G23) |