Canadian Socially Responsible Investment Mutual Funds Performance Evaluation Using Data Envelopment Analysis

Socially responsible investment (SRI) mutual funds, which rely on social, environmental and ethical considerations in the investment decision-making process, have experienced significant growth over the past 20 years worldwide. This chapter examines the performance, over the 2008-2011 period, of a survivorship bias-free sample of 85 Canadian SRI funds, using a Data Envelopment Analysis (DEA) approach. This technique does not require the specification of benchmarks and allows measuring the relative efficiency of decision making units/funds in the presence of a multiple input-output setting. Various performance indicators or efficiency scores are derived using higher-order moments and tail-risk measures, fee structures, net returns, and fund size. The results confirm the suitability of the DEA-based performance setting and suggest that front-end loads and fund size are the main causes of the inefficiency of Canadian SRI mutual funds. These findings carry important implications for the fund-selection process and performance persistence, and would be of interest to regulators, practitioners, and institutional and individual investors.