Faith-based and sin portfolios: An empirical inquiry into norm-neglect vs norm-conforming investor behavior
Purpose – 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.
Volume (Year): 36 (2010)
Issue (Month): 10 (October)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=mf Email:
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.:
- Fama, Eugene F. & French, Kenneth R., 1997. "Industry costs of equity," Journal of Financial Economics, Elsevier, vol. 43(2), pages 153-193, February.
- 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.
- Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:eme:mfipps:v:36:y:2010:i:10:p:876-885. See general information about how to correct material in RePEc.
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.