Riedl and Smeets (2013)
Riedl, Arno, and Paul Smeets. "Socially Responsible Investments: Return Expectations or Social Preferences?" Working paper (Maastricht University), 2013.
From the authors' abstract: "This paper explores why retail investors deviate from holding the market portfolio by investigating the role of ex ante return expectations and investors’ social preferences. We use administrative investor trading records which we link to decisions of the same investors in experiments with real money at stake. We show that social preferences rather than return expectations or risk perceptions are the main driver of investments in socially responsible (SRI) mutual funds. In fact, most investors who hold SRI funds expect to earn lower financial returns on these funds than on other funds. Social preferences are only associated with investments in SRI funds without tax benefits, but are unrelated to investments in SRI funds with tax incentives. Assuming stable social preferences, our results suggest that preferences for SRI funds can generate long run effects on asset prices and that tax incentives change the clientele of funds. Our results also show that prosocial behavior in one domain (experiment) is correlated with prosocial behavior in another domain (investments), which adds to the literature on the external validity of experiments.