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The Determinants of Sin Stock Returns: Evidence on the European Market

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  • Julie Salaber

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

This article deals with the time-series variation in average sin stock returns – returns on publicly-traded companies involved in producing tobacco, alcohol, and gaming. Next to nothing has been written about this class of stocks, especially on the European stock market. The hypothesis I explore in this paper is that sin stock returns depend on legal and cultural characteristics such as religious preferences, the level of excise taxation, and the degree of litigation risk. Using data on 18 European countries over the period 1975-2006, my results show evidence that Protestants are more "sin averse" than Catholics, and require a significant premium on sin stocks. Moreover, sin stocks have higher risk-adjusted returns when they are located in a country with high excise taxation; and sin stocks outperform other stocks when the litigation risk is higher, even after controlling for well-known risk factors such as market capitalization and book-to-market ratio. These findings suggest that sin stock returns depend on both legal and religious environments of each country.

Suggested Citation

  • Julie Salaber, 2007. "The Determinants of Sin Stock Returns: Evidence on the European Market," Working Papers halshs-00170219, HAL.
  • Handle: RePEc:hal:wpaper:halshs-00170219
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00170219
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    Cited by:

    1. El Ghoul, Sadok & Guedhami, Omrane & Kwok, Chuck C.Y. & Mishra, Dev R., 2011. "Does corporate social responsibility affect the cost of capital?," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2388-2406, September.
    2. Colonnello, Stefano & Curatola, Giuliano & Gioffré, Alessandro, 2019. "Pricing sin stocks: Ethical preference vs. risk aversion," European Economic Review, Elsevier, vol. 118(C), pages 69-100.
    3. Fauver, Larry & McDonald, Michael B., 2014. "International variation in sin stocks and its effects on equity valuation," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 173-187.
    4. Borgers, A.C.T., 2014. "Responsible investing : New insights into performance and tastes," Other publications TiSEM 587e777f-c242-4a44-968e-7, Tilburg University, School of Economics and Management.
    5. Leventis, Stergios & Hasan, Iftekhar & Dedoulis, Emmanouil, 2013. "The cost of sin: The effect of social norms on audit pricing," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 152-165.
    6. Al-Khazali, Osamah & Bouri, Elie & Roubaud, David & Zoubi, Taisier, 2017. "The impact of religious practice on stock returns and volatility," International Review of Financial Analysis, Elsevier, vol. 52(C), pages 172-189.
    7. Liston, Daniel Perez, 2016. "Sin stock returns and investor sentiment," The Quarterly Review of Economics and Finance, Elsevier, vol. 59(C), pages 63-70.
    8. Derwall, Jeroen & Koedijk, Kees & Ter Horst, Jenke, 2011. "A tale of values-driven and profit-seeking social investors," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 2137-2147, August.
    9. Leventis, Stergios & Hasan, Iftekhar & Dedoulis, Emmanouil, 2013. "The cost of sin: The effect of social norms on audit pricing," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 152-165.
    10. Hannah Oh & John Bae & Sang-Joon Kim, 2017. "Can Sinful Firms Benefit from Advertising Their CSR Efforts? Adverse Effect of Advertising Sinful Firms’ CSR Engagements on Firm Performance," Journal of Business Ethics, Springer, vol. 143(4), pages 643-663, July.
    11. Benjamin R. Auer, 2016. "Do Socially Responsible Investment Policies Add or Destroy European Stock Portfolio Value?," Journal of Business Ethics, Springer, vol. 135(2), pages 381-397, May.
    12. repec:zbw:bofrdp:2013_013 is not listed on IDEAS
    13. Jiří Strouhal & Natalja Gurvitš & Monika Nikitina-Kalamäe & Emilia Startseva, 2015. "Finding the Link between CSR Reporting and Corporate Financial Performance: Evidence on Czech and Estonian Listed Companies," Central European Business Review, Prague University of Economics and Business, vol. 2015(3), pages 48-59.
    14. Mihir Tirodkar & Henk Berkman, 2023. "Are polluters shunned? A study on the institutional ownership and returns of polluter stocks," The Financial Review, Eastern Finance Association, vol. 58(3), pages 513-537, August.
    15. Toni Vide, 2016. "Does It Pay To Be Good? An Analysis Of Vice And Virtue Stock Performance In The Eurozone," Faculty of Management Working Paper Series 12016, University of Warsaw, Faculty of Management.
    16. Chollet, Pierre & Sandwidi, Blaise W., 2018. "CSR engagement and financial risk: A virtuous circle? International evidence," Global Finance Journal, Elsevier, vol. 38(C), pages 65-81.
    17. Siri Tronslien Sagbakken & Dan Zhang, 2022. "European sin stocks," Journal of Asset Management, Palgrave Macmillan, vol. 23(1), pages 1-18, February.

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