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The Opportunity Cost of Monetary Conviction:



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The Opportunity Cost of Monetary Conviction A Comparison of the DSI and the S P 500 By Melissa Arms I INTRODUCTION Of the numerous types of mutual funds that have developed in the past decade few have grown as fast or received as much attention as socially responsible funds SRI s short for socially responsible investments are funds that allow the investor to consolidate his or her ethical and moral convictions with their financial goals This new wave of putting your money where your mouth is allows one to purchase stocks that support businesses which produce jobs support fair trade strengthen communities guard the environment and spurn unhealthy practices alcohol and tobacco Morningstar reports that total assets in SRI mutual funds have doubled over the last two years with the number of SRI funds now approaching 50 up from just 15 in 1991 The industry itself has grown from a 40 billion to a 639 billion industry with almost one in every ten U S dollars invested in such funds Perryman SRI funds subject their investment universe to a series of social and financial screens that ensure the portfolio is consistent with the consumers personal belief system These screens can be negative positive or activist Although admirable from an ethical standpoint the financial viability and performance of such funds is questionable basic financial theory espouses that a limited investment universe equates with limited returns Socially responsible investors should therefore expect to take a loss for their monetary conviction On the other hand a growing pool of theory maintains that socially responsible investing could be more lucrative than traditional investing due to market inefficiencies and the strength of the underlying firms Hence the purpose of this paper is to determine whether socially responsible investors take a loss for their monetary convictions by delineating the theory between these two opposing hypotheses and determining which has more statistical validity A Pro Market



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