A volatility-match approach to measure performance: the case of socially responsible exchange traded funds (ETFs)

Abstract

Purpose

This study examines the risk-adjusted performance of socially responsible exchange traded funds (SR ETFs) in comparison to conventional ETFs.

Design/methodology/approach

The main empirical result is based on a risk-adjusted performance metric that does not rely on a linear framework. It measures the difference between the returns of an ETF and the returns of a volatility-match and efficient portfolio. In addition, performance is measured using alpha based on single and multifactor formulations.

Findings

Results show that the performance of SRI ETFs is not different from the performance of conventional ETFs.

Originality/value

Given the results of the study, socially aware investors can choose to invest in SRI ETFs without sacrificing performance.

Citation

Lobato, M., Rodríguez, J. and Romero, H. (2021), "A volatility-match approach to measure performance: the case of socially responsible exchange traded funds (ETFs)", Journal of Risk Finance, Vol. 22 No. 1, pp. 34-43. https://doi.org/10.1108/JRF-04-2020-0066