The performance of US and European green funds in different market conditions

The effects of incorporating environmental criteria in investment decisions is of upmost importance to an increasing number of investors. This paper evaluates the performance of US and European green funds that invest globally by using conditional models that consider both time-varying performance and risk measures. The results show that green funds tend to underperform the benchmark, particularly European funds. Fund underperformance is mainly concentrated in times when short-term interest rates are lower-than-normal and in non-crisis periods. Also, the performance of green funds is higher in crisis periods compared to non-crisis periods. Furthermore, although at the aggregate level green funds that are certified with a SRI label perform similarly to green funds without a label, there are less certified funds presenting negative performance compared to non-certified funds. US green funds perform better than other socially responsible funds in times of crisis, whereas European green funds match their performance in crisis periods but underperform them in non-crisis periods. Overall, the results support the importance of using conditional models in evaluating fund performance.