Pricing sin stocks: Ethical preference vs. risk aversion

Stefano Colonnello, Giuliano Curatola and Alessandro Gioffré

European Economic Review, 2019, vol. 118, issue C, 69-100

Abstract: We develop an ethical preference-based model that reproduces the average return and volatility spread between sin and non-sin stocks. Our investors do not necessarily boycott sin companies. Rather, they are open to invest in any company while trading off dividends against ethicalness. When dividends and ethicalness are complementary goods and investors are sufficiently risk averse, the model predicts that the dividend share of sin companies exhibits a positive relation with the future return and volatility spreads. An empirical analysis supports the model’s predictions. Taken together, our results point to the importance of ethical preferences for investors’ portfolio choices and asset prices.

Keywords: Asset pricing; General equilibrium; Sin stocks (search for similar items in EconPapers)
JEL-codes: D51 D91 E20 G12 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Working Paper: Pricing Sin Stocks: Ethical Preference vs. Risk Aversion (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:118:y:2019:i:c:p:69-100

DOI: 10.1016/j.euroecorev.2019.04.006

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