DEA models for socially responsible mutual funds with applications to European and Swedish SRI funds

What is it about?

This contribution proposes some Data envelopment analysis (DEA) models that allows to take into account the degree of social responsibility of mutual funds, together with financial risk and return. Unlike other DEA models, a constant initial capital and the final value of the investment are considered; this ensures the positivity of all variables, even during financial crises. Moreover, a specific analysis compares the performance of SRI and non SRI mutual funds, in order to determine if socially responsible investments (SRI) require a sacrifice in terms of financial rewards. Finally, a more detailed investigation is carried out for Swedish SRI mutual funds.

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Why is it important?

The importance of socially responsible investments (SRI), in general, and of SRI mutual funds, in particular, has greatly increased in the last decade. However, the ethical objective poses some constraints on the choice of the stocks that can be included in the portfolio of SRI mutual funds, which may have consequences on their financial returns. This contribution proposes some DEA models in which the input and output variables are focused on the main determining factors of investments in mutual funds, considered both from a financial and an ethical point of view.