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Can Naughty Be Nice for Investors: A Multifactor Examination of Vice Stocks

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  • Greg M. Richey

    (California State University, USA)

Abstract

This article examines the return characteristics of a portfolio of U.S. “vice stocks,” those of firms that manufacture and sell socially irresponsible products such as alcohol, tobacco, gaming and national defense services. First of all, I construct a portfolio using the daily returns of forty one vice stocks over the period from October 2007 to October 2013 and find the Jensen’s alpha (CAPM), Fama-French three factor and Carhart four-factor results for the entire portfolio, the entire portfolio during bear and bull markets, and each vice industry individually. Full-period results show a positive, yet insignificant alpha for the entire portfolio and each vice industry. Bear market results show a positive and significant alpha for the entire portfolio as well as for all industry portfolios except the tobacco industry. Bull market results for the portfolio are less conclusive with an alpha significant only in the three and four-factor models.

Suggested Citation

  • Greg M. Richey, 2014. "Can Naughty Be Nice for Investors: A Multifactor Examination of Vice Stocks," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 3(3), pages 162-169.
    • Handle: RePEc:ods:journl:v:3:y:2014:i:3:p:162-169
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    Cited by:

    1. Anatoliy G. Goncharuk, 2015. "Application of the Investment Theory in Research and Practice," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 4(2), pages 119-126.
    2. Olofsson, Petter & Råholm, Anna & Uddin, Gazi Salah & Troster, Victor & Kang, Sang Hoon, 2021. "Ethical and unethical investments under extreme market conditions," International Review of Financial Analysis, Elsevier, vol. 78(C).
    3. Anurag Agarwal & Ajay Verma & Rajiv Kumar Agarwal, 2016. "Factors Influencing the Individual Investor Decision Making Behavior in India," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 5(4), pages 211-222, November.
    4. Nibu Raj Abraham, 2015. "Underpricing in the Malaysian IPO Market During 2009-2014," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 4(4), pages 194-200, November.
    5. Yu Zhang & Xiaosong Zheng, 2016. "A Study of Herd Behavior Based on the Chinese Stock Market," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 5(2), pages 131-135, May.

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