Can hedge funds benefit from corporate social responsibility investment?. Issue 2 (22nd February 2021)

• Record Type: Journal Article
• Authors: Duanmu, Jun; Huang, Qiping; Li, Yongjia; McBrayer, Garrett A.
• Is Part Of: Financial review. Volume 56:Issue 2(2021)
• Page Start: 251
• Page End: 278
• Publication Date: 2021-02-22
• Subjects: corporate social responsibility -- hedge funds -- investment risk; Finance -- United States -- Periodicals; Finance -- Periodicals; 332
• DOI: 10.1111/fire.12261
• Languages: English
• ISSNs: 0732-8516

Abstract

Abstract: We explore the extent to which hedge funds incorporate corporate social responsibility (CSR) considerations in the development of their investment strategies. Using an asset‐weighted composite measure of CSR by fund, we examine the difference in financial performance between hedge funds with high CSR investment relative to those with low CSR investment and document no significant difference. Yet, we find that hedge funds increase their exposure to high‐CSR investments over our sample period, specifically postfinancial crisis. We find that the increases in CSR investment are associated with lower return volatilities in the future. Additionally, hedge funds with higher weighted CSR scores exhibit significantly lower risk factor loadings than funds with lower weighted CSR scores. Our results suggest that hedge funds are able to derive benefits by using CSR considerations as a form of risk mitigation in their investment policies.