DP16477 Mutual Fund Loyalty and ESG Stock Resilience During the COVID-19 Stock Market Crash

Author(s): Rui Albuquerque, Yrjo Koskinen, Raffaele Santioni
Publication Date: August 2021
Date Revised: August 2021
Keyword(s): COVID-19, Environmental and social responsibility, Fund flows, institutional investors, investor loyalty, Stock Market Crash, trading horizon
JEL(s): G01, G12, G23, G32, M14
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16477

This paper studies the trading behavior of U.S. actively-managed equity mutual funds during the COVID-19 market crash. We show that Environmental, Social, and Gover- nance (ESG) funds helped to stabilize the market by contributing to the resiliency of ESG stocks, but interestingly non-ESG funds also provided support for ESG stocks. First, ESG funds reduced net sales during the crash, controlling for fund flows. Sec- ond, all funds experiencing inflows helped to stabilize the market during the crash by increasing net purchases, but the behaviour was more pronounced for ESG funds. Third, funds experiencing outflows also played a key role contributing to the relative stability of ESG stocks as both ESG and non-ESG funds sold more aggressively their non-ESG stocks. We are able to uncover these results because we use monthly holdings data from Morningstar, instead of the commonly used quarterly data.