Sin stock returns and social norms

Abstract

In this master’s thesis, I investigate sin stocks and provide evidence that social norms affect on market outcomes. In this study, sin stocks are defined as publicly traded companies in the alcohol, gaming and tobacco industries. The purpose of this master’s thesis is to analyze whether sin stock portfolio generate abnormal excess returns. This thesis provides also insights whether recent trend of responsible investment affect on sin stock returns.

Previous literature suggest that sin stocks tend to outperform comparables. However, previous studies are relatively old taking account that popularity of responsible investing has grown significantly in recent years. Data set I use is US stock market data from 1986 to 2016, which allows me to investigate also the most recent trends. I also utilize subsamples to investigate whether the sin stock returns have been constant during sample period.

The results indicate that sin stocks tend to generate abnormal excess returns, which is in line with my prediction. Results also suggest that recent trend of responsible investment affect on sin stock returns.