Process-oriented social responsibility indicator for mutual funds: a multi-criteria decision analysis approach

Abstract

In recent years, socially responsible investing (SRI) has grown from a niche to a mainstream investment strategy. Consequently, the supply of SRI mutual funds expanded and a discussion on the performance of SRI funds developed. The traditional approach to measuring mutual fund performance does not take into account possible heterogeneity with respect to social responsibility and focuses on a dichotomous SRI versus non-SRI typology. We consider multi-criteria decision analysis (MCDA) to build an indicator to capture the multi-faceted nature of SRI. Considering extensive robustness analysis and additional criteria, we find the PROMETHEE methodology to be most recommended for both academic and professional applications. The obtained scores and rankings prove to be highly robust and are in line with generally accepted intuition in the industry. The proposed PROMETHEE-based indicator is also easy to understand and implement, which makes it highly suited for implementation in mutual fund performance research.