Financial Markets and Portfolio Management

, Volume 27, Issue 4, pp 397–429 | Cite as

The conditional performance of US mutual funds over different market regimes: do different types of ethical screens matter?

  • Nelson Areal
  • Maria Céu CortezEmail author
  • Florinda Silva


We investigate the performance of US mutual funds that employ different ethical criteria: religious, socially responsible, and irresponsible. Performance is evaluated over different market regimes using a Markov-switching conditional CAPM approach that endogenously defines different states of the market. This model is also extended to a multifactor context. The results show that estimates of performance vary across different market regimes. The Vice Fund, which invests in unethical firms, outperforms in low-volatility regimes, but underperforms in high-volatility regimes. These results contradict the Vice Fund’s claim that it constitutes a “solid investment during recessionary periods”. Our results show that socially responsible and morally responsible funds exhibit different performance across different market conditions, thereby supporting the use of performance evaluation models that take into account different market regimes. Overall, different types of ethical screens seem to lead to different performance patterns across different market regimes.


Socially responsible mutual funds Vice fund Fund performance evaluation Market regimes Markov-switching conditional models 

JEL Classification

G10 G11 M14 



We thank Markus M. Schmid (the editor) and an anonymous referee, as well as participants at the PFN 2010 and EFMA 2011 conferences, for valuable comments and suggestions.


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Copyright information

© Swiss Society for Financial Market Research 2013

Authors and Affiliations

  • Nelson Areal
    • 1
  • Maria Céu Cortez
    • 2
    Email author
  • Florinda Silva
    • 2
  1. 1.School of Economics and ManagementUniversity of MinhoBragaPortugal
  2. 2.NIPE - School of Economics and ManagementUniversity of MinhoBragaPortugal

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