Impact analysis of fund manager’s added value on risk-adjusted performance, measured by Sharpe ratio, regarding Socially Responsible Investment Funds (SRI)

Abstract

The main objective of this research is the fact of analyzing the impact of fund manager’s added value regarding Socially Responsible Investment Funds (SRI) in comparison with its benchmark. In this study the fund manager’s added value is measured by the financial ratio named Alpha while the risk-adjusted performance is measured by Sharpe ratio, which is taken along a limited time framework. This possible impact is studied in a direct way as well as an indirect way by using the fund returns. It is also used a wide range of control variables in order to observe the influence on risk-adjusted performance, some of these variables are: currency, fund size, minimum initial investment, investment strategies or volatility. The sample used to develop this research is composed of a worldwide funds sample, which was taken from the financial and economic database Bloomberg. Initially this sample included 2,660 funds, which was finally shortlisted for the final sample with 709 worldwide funds. In order to carry out this study, it is used a structural equation modeling (SEM), which is based on partial least squares and it is also well-known as PLS Model. In this model is taken into consideration two different approaches, firstly an internal model and secondly an external model, as well as the fact of having statistical significance to obtain the results from the hypothesis testing. The PLS Model works in three different stages, the first one is to calculate the PLS Algorithm, the second one is the Bootstrapping process which was run 5,000 iterations and finally the process known as Blindfolding.