To sin or not to sin? Now that's the question
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James Chong* is an assistant professor of finance at California State University, Northridge. He received his PhD in Finance from the ISMA Centre, the University of Reading. He also holds postgraduate degrees in financial mathematics from the University of Chicago, and finance from Lancaster University. His undergraduate qualification is in accounting from Nanyang Technological University.
Monica Her is an associate professor of finance at California State University, Northridge. She obtained her doctoral degree in finance from Texas A&M University at College Station, TX, and also holds a masters degree in science, majoring in finance, from the same university. Centred between her two graduate studies, she was a senior financial analyst for a London-based securities investment consulting firm, Hoare Govett Securities, in its Taipei office.
G. Michael Phillips is a professor of finance at California State University, Northridge. He previously taught at University of Southern California and was an Economist for the US Department of Commerce. His doctoral study was at the University of California, San Diego. *Department of Finance, Real Estate, and Insurance, California State University, Northridge, 18111 Nordhoff Street, Northridge, CA 91330-8379, USA. Tel: +1 (818) 677-4613; Fax: +1 (818) 677-6079; E-mail: [email protected]
Abstract This study examines the risk and performance of the Vice Fund, an antithesis of socially responsible funds. It also introduces a more robust measure of risk and performance, in the form of the autoregressive conditional heteroscedasticity model, into the socially responsible investing arena. While the traditional unconditional measures highlight the characteristics of each time series over a certain horizon, the conditional alternative allows the daily dynamics of the time series to be examined. Keywords: socially responsible, vice fund, GARCH
Introduction This paper compares a ‘socially responsible fund’ and a ‘socially irresponsible fund’. While much has been studied in the socially responsible investing (SRI) arena, very little is being said about socially irresponsible investing. Is ‘social responsibility’ different from ‘social irresponsibility’ in their performance? Are these investments statistically distinguishable? Our two candidates are the Domini Social Equity Fund (ticker DSEFX) and the Vice Fund
406
Journal of Asset Management
(ticker VICEX). In addition, the S&P500 Index is used as a benchmark. Several things make this study unusual: the candidates, the use of daily rather than monthly data, and the methods applied. Besides traditional risk/performance measures (such as Jensen’s alpha and Sharpe ratio), conditional risk/performance measures based on the autoregressive conditional heteroscedasticity (ARCH) family of models are applied. These risk measures give more accurate measures of the
Vol. 6, 6, 406–417
䉷 Palgrave Macmillan Ltd 1479-179X/06 $30.00
To sin or not to sin?
extent to which the Domini Social Equity Fund and the Vice Fund may suffer from losing th
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