ESG rankings, lnuestor Preferences, and Net Flows: Euidence from US Mutual Equity Funds in Market Downturns

Abstract

This study examines the relationship between fund sustainability and net flows of open-ended US mutual equity funds, and investor preferences in market downturns. We find evidence of a pattern using panel data fixed effects models and incorporating ESG scores from multiple providers. During market downturns, investors tend to withdraw from funds with weak sustainability performance and gravitate towards those with strong sustainability performance. This preference for sustainability holds for both the COVID-19 pandemic and the Russia-Ukraine War. Overall, the study provides valuable insights into the relationship between fund sustainability, investor behavior, and market conditions, highlighting the significance of sustainability as a factor influencing investment decisions in times of uncertainty.