Investing in virtue and frowning at vice? Lessons from the global economic and financial crisis

Lucia Morales; Daniel Rajmil; Lucia Morales; Daniel Rajmil

doi:10.3934/QFE.2023001

Quantitative Finance and Economics

2023, Volume 7, Issue 1: 1-18. doi: 10.3934/QFE.2023001

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Research article

Investing in virtue and frowning at vice? Lessons from the global economic and financial crisis

Lucia Morales ^{1
,
,},
Daniel Rajmil ²

1.
School of Accounting, Economics and Finance Technological University Dublin, Ireland
2.
Law & Political Sciences Faculty, Universitat Oberta de Catalunya, Spain

Received: 21 November 2022 Revised: 22 December 2022 Accepted: 06 January 2023 Published: 12 January 2023
JEL Codes: C22, F21, G11, G15

Socially responsible mutual funds (SRMF) and the "antisocially conscious", Vitium Global Fund Barrier Fund (formerly known as the Vice Fund, the term used in this paper) returns, volatility patterns, and causal effects are examined in this study within the context of the lessons learned from the 2008 Global Economic and Financial Crisis (GEFC). In times of a new and unprecedented crisis due to the COVID-19 pandemic, a look back to our recent past reveals that volatility patterns on daily stock returns presented some level of predictability on prices for both types of funds. The research findings are significant as funds' potential predictability could help market players when designing their investment strategies. More specifically, an increase in volatility persistence is found after the GEFC, together with an increase in the Vice Fund's resilience to market shocks. Although all funds, without substantial differences, take time to absorb the shocks. A noteworthy outcome relates to SRMF that was able to achieve higher returns and exhibited lower volatility levels during the crisis period. Whereas the Vice Fund revealed long-run sustainable performance offering fund managers and investors investment opportunities that are endorsed by the fund performance over the period. Furthermore, unidirectional causality was found running from the Vice Fund to the SRMF, exhibiting a clear dominance during the GEFC period. The research findings contribute to the debate on the future of socially responsible investment, indicating that SRMF appears to be driven by "antisocially conscious" funds signaling limited rewards for investors inclined to invest in funds that are considered socially responsible.
- performance,
- social responsible investment,
- ethical investing,
- vice,
- volatility,
- causality,
- GARCH
Citation: Lucia Morales, Daniel Rajmil. Investing in virtue and frowning at vice? Lessons from the global economic and financial crisis[J]. Quantitative Finance and Economics, 2023, 7(1): 1-18. doi: 10.3934/QFE.2023001

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Abstract

Socially responsible mutual funds (SRMF) and the "antisocially conscious", Vitium Global Fund Barrier Fund (formerly known as the Vice Fund, the term used in this paper) returns, volatility patterns, and causal effects are examined in this study within the context of the lessons learned from the 2008 Global Economic and Financial Crisis (GEFC). In times of a new and unprecedented crisis due to the COVID-19 pandemic, a look back to our recent past reveals that volatility patterns on daily stock returns presented some level of predictability on prices for both types of funds. The research findings are significant as funds' potential predictability could help market players when designing their investment strategies. More specifically, an increase in volatility persistence is found after the GEFC, together with an increase in the Vice Fund's resilience to market shocks. Although all funds, without substantial differences, take time to absorb the shocks. A noteworthy outcome relates to SRMF that was able to achieve higher returns and exhibited lower volatility levels during the crisis period. Whereas the Vice Fund revealed long-run sustainable performance offering fund managers and investors investment opportunities that are endorsed by the fund performance over the period. Furthermore, unidirectional causality was found running from the Vice Fund to the SRMF, exhibiting a clear dominance during the GEFC period. The research findings contribute to the debate on the future of socially responsible investment, indicating that SRMF appears to be driven by "antisocially conscious" funds signaling limited rewards for investors inclined to invest in funds that are considered socially responsible.

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