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The mispricing of socially ambiguous grey stocks

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  • Lam, Swee-Sum
  • Zhang, Weina
  • Jacob, Gabriel Henry

Abstract

The study examines how stock market prices the stocks of socially ambiguous “Grey” firms, who are socially responsible in certain corporate social responsibility (CSR) dimensions while being socially irresponsible in other dimensions. Using firm data from 1992 to 2011, we find that the value-weighted “Grey” portfolio earns an annual abnormal return up to 3.6% relative to “Neutral” portfolio that consists of neither socially responsible nor irresponsible firms. Interestingly, “Community” and “Environment” sub-dimensions of CSR are the main drivers for the overpricing. The overpricing phenomenon is robust and is not driven by small firms, the “Sin” stocks or “Controversial” industries.

Suggested Citation

  • Lam, Swee-Sum & Zhang, Weina & Jacob, Gabriel Henry, 2015. "The mispricing of socially ambiguous grey stocks," Finance Research Letters, Elsevier, vol. 13(C), pages 81-89.
    • Handle: RePEc:eee:finlet:v:13:y:2015:i:c:p:81-89
    DOI: 10.1016/j.frl.2015.02.010
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    Cited by:

    1. Wu, Dejun & Lin, Chen & Liu, Sibo, 2016. "Does community environment matter to corporate social responsibility?," Finance Research Letters, Elsevier, vol. 18(C), pages 127-135.
    2. Karim, Sitara & Naeem, Muhammad Abubakr & Lucey, Brian M., 2022. "Do ethics outpace sins?," Finance Research Letters, Elsevier, vol. 47(PB).
    3. Fu, Yufen & Wright, Danika & Blazenko, George, 2020. "Ethical Investing Has No Portfolio Performance Cost," Research in International Business and Finance, Elsevier, vol. 52(C).
    4. Pedro Antonio Martín-Cervantes & María del Carmen Valls Martínez, 2023. "Unraveling the relationship between betas and ESG scores through the Random Forests methodology," Risk Management, Palgrave Macmillan, vol. 25(3), pages 1-29, September.
    5. Henry L. Friedman & Mirko S. Heinle, 2016. "Taste, information, and asset prices: implications for the valuation of CSR," Review of Accounting Studies, Springer, vol. 21(3), pages 740-767, September.

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    More about this item

    Keywords

    Corporate social responsibility (CSR); Community; Controversial industries; Environment; Socially ambiguous grey stocks; Sin stocks;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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