Why do investors hold socially responsible mutual funds?

Why do individual investors hold socially responsible (SRI) mutual funds? We use administrative data and link them to survey responses and behavior in incentivized social preferences experiments. Our results show that intrinsic social preferences are crucial for investment decisions and that social signaling also plays a role. Contrasting standard finance theory, financial motives are of limited importance. In fact, socially responsible investors expect to earn lower returns on SRI than on conventional funds and pay higher management fees. This shows that a large group of investors is willing to forgo financial performance to invest in accordance with their social preferences.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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