Faith-based and sin portfolios: An empirical inquiry into norm-neglect vs norm-conforming investor behavior
AbstractPurpose – The purpose of this paper is to investigate relative portfolio performance between sin stock returns and faith-based returns. Design/methodology/approach – Similar to Hong and Kacperczyk, Jensen's alpha was utilized to conduct tests along with three asset-pricing models and rolling regression technique to reveal that faith-based and sin betas move in opposite directions during most of the sample period. Findings – Norm-neglect was found, in that Jensen's alpha is positive and significant for the sin portfolio. Further, evidence in favor of norm-conforming investor behavior was found, where Jensen's alpha is negative and significant for the faith-based portfolio. These findings provide evidence that the sin portfolio outperforms the faith-based portfolio relative to the market. A rolling regression technique reveals that faith-based and sin betas tend to move in opposite directions during most of the sample period. The evidence suggests that faith-based beta has an average estimated beta of one, mimicking the market. The sin portfolio, however, has an average estimated beta of one-half. Finally, the reward-to-risk measure, Sharpe ratio, is statistically higher for the sin portfolio relative to the faith-based portfolio. Originality/value – This paper contributes to the literature in the following distinct ways. First, three asset-pricing models are estimated to examine Jensen's alpha for sin and faith-based portfolios. Second, a rolling regression procedure is used to examine the dynamic behavior relative to the market of the sin and faith-based portfolios. Third, use is made of the Jobson and Korkie test, which allows for statistical comparisons of Sharpe ratios. Lastly, daily instead of monthly data and a different sample period are used to examine the research questions posed in this study.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Managerial Finance.
Volume (Year): 36 (2010)
Issue (Month): 10 (October)
Contact details of provider:
Web page: http://www.emeraldinsight.com
Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
- Emil Boasson & Vigdis Boasson & Joseph Cheng, 2006. "Investment principles and strategies of faith-based funds," Managerial Finance, Emerald Group Publishing, vol. 32(10), pages 837-845.
- Banz, Rolf W., 1981. "The relationship between return and market value of common stocks," Journal of Financial Economics, Elsevier, vol. 9(1), pages 3-18, March.
- Fama, Eugene F. & French, Kenneth R., 1997. "Industry costs of equity," Journal of Financial Economics, Elsevier, vol. 43(2), pages 153-193, February.
- Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
- Durand, Robert B. & Koh, SzeKee & Limkriangkrai, Manapon, 2013. "Saints versus Sinners. Does morality matter?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 24(C), pages 166-183.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Louise Lister).
If references are entirely missing, you can add them using this form.