Peifer, Jared L. "Morality in the Financial Market? A Look at Religiously Affiliated Mutual Funds." Working Paper, Cornell University, 2009.

This study examines the loyalty of investors in religious mutual funds as compared with conventional funds, and finds that, in general, investors in religious funds are more loyal than those in conventional funds.

Fund flows are examined using similar techniques as Bollen and Cohen (2004), but with five additional years of data (1991-2007). Financial data is taken from the CRSP survivor-free mutual fund database. Funds are classified into four categories: religious SRI, religious non-SRI, non-religious SRI, and conventional. The classification process appears unusually thorough, and the author believes that the full list of 285 religious funds represents "the first comprehensive list of religious mutual funds in the United States." 200 of these funds remain active.

The research questions are framed as:
  • Do religious SRI funds have lower flow-performance impact [sensitivity of additions and redemptions to prior year performance] than non-religious SRI funds? How do religious, but non-SRI funds compare?
  • Do religious SRI funds have lower fund flow volatility [std deviation of monthly fund flows] than non-religious SRI? How do religious non-SRI funds compare?

The author's regression analysis suggests that the answer to the first question is 'yes' - all mutual funds experience higher fund flows following good performance and lower flows following bad performance, but religious SRI funds were "noticeably least responsive to lagged positive performance," and non-religious SRI funds were also less responsive. This differs from Bollen's findings using 1991-2002 data.

The second question is also answered in the affirmative, as SRI funds are found to "have higher fund loyalty (less volatility) than non-religious SRI funds, religious non-SRI funds, and conventional funds."

A brief performance analysis using the Carhart model, similar to Bauer (2002) and Geczy (2003), finds that "SRI funds (both religious and non-religious) under-perform conventional funds, after controlling for the funds' risk exposure," a provocative finding given competitive social index returns over the time period. [I may be missing it, but I can't tell whether this was an equal- or value-weighted analysis. -lk]

Also includes a good review of recent publications on SRI, CSR, and the larger issue of religious values in economic life.