An assessment of variances and covariances of European SRI funds returns : does the intensity of extra-financial negative screening matter?

Social responsible investment is surging in all industrial countries, despite the conventional wisdom that the inclusion of extra-.nancial criteria in the stock selection process should arm the .nancial performance of these funds. As a consequence, many papers attempted to measure the .nancial performance of SRI funds and compared it to the performance of conventional funds with similar characteristics. According to this literature, we use a traditional CAPM model that allows for timevarying volatility to compare the risk-adjusted returns of several portfolios of SRI funds with di¤erences in the intensity of extra-.nancial negative screening. Our key result shows that both alpha and beta are negatively correlated to the intensity of negative screenings. Thus, it appears that the risk-adjusted returns of SRI funds signicantly differ from the returns of conventional funds if this latter criteria is taken into account.