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Journal of Banking & Finance 29 (2005) 1751–1767 www.elsevier.com/locate/jbf International evidence on ethical mutual fund performance and investment style
Rob Bauer b a,c

, Kees Koedijk

b,*

´
, Roger Otten

c

a
ABP Investments, Schiphol, The Netherlands
Faculteit Bedrijfskunde, Erasmus University Rotterdam and CEPR, P.O. Box 1738,
3000 DR Rotterdam, The Netherlands c Maastricht University, Maastricht, The Netherlands

Received 23 September 2003; accepted 28 June 2004
Available online 23 September 2004

Abstract
Using an international database containing 103 German, UK and US ethical mutual funds we review and extend previous research on ethical mutual fund performance. By applying a
Carhart
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1 While the origins of ethical investing date back many hundreds of years, the modern roots of social investing can be traced to the political climate of the 1960Õs. 2 Issues like the environment, civil rights and nuclear energy served to increase the social awareness of investors.
Accordingly, mutual funds were set up with the explicit intention to meet the demand for incorporating ethical criteria in the investment process. This led to a dramatic increase in ethically managed mutual fund assets, an industry which now represents $153billion in the United States. If we would also include all US private and institutional ethically screened portfolios this number tops the $2trillion mark at the end of 2000. 3 At the moment almost 12% of money under professional management in the United States is part of a socially responsible portfolio.
Because of the sheer size and importance of this movement, the academic community has displayed considerable interest in the financial consequences of investing ethically. The theoretical debate pertaining to the potential virtues of socially responsible investing can be structured along several lines. Hamilton et al. (1993) mention three alternative hypotheses. The first is that socially responsible investing does not add or destroy value in terms of risk-adjusted returns, because corporate social responsibility is not priced. 4 Their second hypothesis is that socially responsible

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