Featured Research

from universities, journals, and other organizations

Moral Judgment On 'Sin Stocks' Means Higher Returns For Vice-Friendly Investors

Date:
April 15, 2007
Source:
University Of British Columbia
Summary:
Society's disapproval of alcohol, tobacco and gambling means that some investors -- mostly public institutions -- lose out while other investors gain on these undervalued sin stocks.

Society’s disapproval of alcohol, tobacco and gambling means that some investors -- mostly public institutions -- lose out while other investors gain on these undervalued “sin stocks,” according to a study conducted by the Sauder School of Business at the University of British Columbia.

Sauder Prof. Marcin Kacperczyk and co-author Prof. Harrison Hong of Princeton University analyzed stock markets and the impact they feel from society’s framework of morals, traditions and laws.

“While sinful stocks aren't necessarily good for the soul, they do deliver higher returns,” says Kacperczyk, adding that the penchant for vice can translate into bigger returns for institutional or individual investors. “Our analysis associates social norms with significant price effects. Sin stocks are under-priced and outperform comparable stocks,” says Kacperczyk.

Their study, The Price of Sin: The Effects of Social Norms on Markets, shows that some investors -- particularly institutions subject to public scrutiny -- pay a financial price for not holding stocks that are linked to human vice.

Institutions such as pension funds, universities, religious organizations, and banks are less willing than other types of investors to hold sin stocks due to the public nature of their investments, their diverse customer bases and their exposure to public scrutiny. In their absence, some mutual funds, hedge funds and individual investors may take advantage of that suppressed demand and the better performance that results from the sin stock effect.

The case of tobacco best illustrates the researchers’ hypothesis. A half-century ago, cigarettes were as acceptable to the mainstream as soft drinks or breakfast cereal. Today, they are held responsible by the medical community as the leading cause of preventable death in North America and an affront to public health globally.

Kacperczyk and Hong found that stock market valuations for tobacco companies have corresponded with the industry's fall from mainstream favor in recent decades. During the 1950s, tobacco stocks were valued in line with other sectors, but today they are undervalued relative to other industries. As fewer institutional investors want to be associated with the nicotine trade, the pool of investors who decides to hold them needs to share proportionately more risk and reward.

The case of gambling may enjoy a possible flipside of the researchers’ hypothesis. The gaming industry has enjoyed greater mainstream acceptance in recent years, and as a result, the researchers expect less undervaluation of stocks in that sector in the years to come.

As for defense stocks, which were not included in the study, Kacperczyk points to the industry as fertile grounds for future research in the area of social norms and stock markets. “It’s interesting to note that defense isn’t necessarily a sin in the United States,” he says. “So the next step would be to see how defense stocks listed in the United States differ from those in Europe, where the industry is more likely to be frowned upon by the general public.”


Story Source:

The above story is based on materials provided by University Of British Columbia. Note: Materials may be edited for content and length.


Cite This Page:

University Of British Columbia. "Moral Judgment On 'Sin Stocks' Means Higher Returns For Vice-Friendly Investors." ScienceDaily. ScienceDaily, 15 April 2007. <www.sciencedaily.com/releases/2007/04/070414110701.htm>.
University Of British Columbia. (2007, April 15). Moral Judgment On 'Sin Stocks' Means Higher Returns For Vice-Friendly Investors. ScienceDaily. Retrieved October 2, 2014 from www.sciencedaily.com/releases/2007/04/070414110701.htm
University Of British Columbia. "Moral Judgment On 'Sin Stocks' Means Higher Returns For Vice-Friendly Investors." ScienceDaily. www.sciencedaily.com/releases/2007/04/070414110701.htm (accessed October 2, 2014).

Share This



More Computers & Math News

Thursday, October 2, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Mozilla Bets On Software To Sell Its Chromecast Competitor

Mozilla Bets On Software To Sell Its Chromecast Competitor

Newsy (Oct. 1, 2014) Mozilla's Matchstick streaming device is entering a crowded market. The company is banking on open-source software to rise above the competition. Video provided by Newsy
Powered by NewsLook.com
App Teaches Kindergarteners to Code

App Teaches Kindergarteners to Code

AP (Oct. 1, 2014) They can't all read yet, but soon kindergarteners may be able to create basic computer code. Researchers in Massachusetts developed an app that teaches young kids a simple computer programming language. (Oct. 1) Video provided by AP
Powered by NewsLook.com
Microsoft Goes For Familiarity Over Novelty In Windows 10

Microsoft Goes For Familiarity Over Novelty In Windows 10

Newsy (Sep. 30, 2014) At a special event in San Francisco, Microsoft introduced its latest operating system, Windows 10, which combines key features from earlier versions. Video provided by Newsy
Powered by NewsLook.com
French Apple Fans Discover the Apple Watch

French Apple Fans Discover the Apple Watch

AFP (Sep. 30, 2014) Apple fans in France discover the latest toy, the Apple Watch. The watch comes in two sizes and an array of interchangeable, fashionable wrist straps. Duration: 00:42 Video provided by AFP
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:

Breaking News:

Strange & Offbeat Stories


Space & Time

Matter & Energy

Computers & Math

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile: iPhone Android Web
Follow: Facebook Twitter Google+
Subscribe: RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins