Abstract

Vice vs. Virtue Investing

Lobe, Sebastian; Roithmeier, Stefan

Whether virtue investing yields abnormal positive stock returns, has been under scrutiny for years. Academic findings on socially responsible investing (SRI) reveal heterogeneous results for the performance of SRI indices. However, recent research indicates an outperformance of sin stocks. Can investors then better their performance by incorporating virtue or vice screens into their investment process? Answering this question is the key contribution of our paper. Extending prior studies on sin investment, we find that publicly traded companies involved in the alcohol, gambling, tobacco, sex, arms and nuclear power industry are able to generate abnormal returns. Employing a self-constructed worldwide index of more than 700 unethical firms, we provide evidence that the risk-return characteristics of sin stocks are superior in comparison to regular stocks as well as socially responsible stocks.
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