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Pricing sin stocks: Ethical preference vs. risk aversion

Stefano Colonnello, Giuliano Curatola and Alessandro Gioffré

No 216, SAFE Working Paper Series from Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt

Abstract: We develop a 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. We show that 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. Our empirical analysis supports the model's predictions.

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)
New Economics Papers: this item is included in nep-mac and nep-upt
Date: 2018
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Related works:
Working Paper: Pricing Sin Stocks: Ethical Preference vs. Risk Aversion (2018) Downloads
Working Paper: Pricing sin stocks: Ethical preference vs. risk aversion (2017) Downloads
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