Administration October 21, 2009

Abstaining from "Sin" Stocks Could Cost Investors

October 21, 2009 (PLANSPONSOR.com) - A new study finds that investors gain 2.5% higher returns every year (on a risk-adjusted basis) by investing in "sin" stocks - publicly traded companies involved in alcohol, tobacco, and gaming - versus investing in stocks with comparable characteristics, such as beverage, food, and entertainment companies, respectively.
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According to a press release, the study also found that there is a societal norm against funding operations that promote vice and that some institutional investors, such as pension plans, hold less of these stocks than other investors and miss out on the gains. In addition, “sin” stocks receive less analyst coverage than stocks with comparable characteristics.

“This research shows that social norms are important for economic outcomes and that they affect markets, including investment decisions, stock prices, and returns,” NYU Stern Assistant Professor of Finance Marcin Kacperczyk, who co-authored the study paper with Harrison Hong from Princeton University, said in the announcement.

Their paper, “The Price of Sin: The Effects of Social Norms on Markets,” is here .

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