Good For Goodness Sake? An evaluation of the performance of ethical funds in Sweden

Sammanfattning: Using a survivorship-bias free dataset, the fund performance and market timing of 95 Swedish ethical mutual funds and 237 conventional mutual funds between 2004 and 2014 is compared in order to investigate if there is an additional cost associated with ethical investments. For the evaluation of fund performance the CAPM single-index model as well as the Carhart (1997) 4-factor model is applied. Results obtained indicate no statistical significant difference in the risk-adjusted returns between ethical and conventional funds. Furthermore, the market timing ability of fund managers is analyzed using the Henriksson- Merton (1981) model. Results show no significant differences between groups, implying that neither ethical nor conventional fund managers are able to forecast market changes correctly. Conclusively, an ethical perspective does not seem to impair the financial returns of the Swedish mutual funds.