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Faith-based and sin portfolios: An empirical inquiry into norm-neglect vs norm-conforming investor behavior

Author

Listed:
  • Daniel Perez Liston
  • Gökçe Soydemir

Abstract

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.

Suggested Citation

  • Daniel Perez Liston & Gökçe Soydemir, 2010. "Faith-based and sin portfolios: An empirical inquiry into norm-neglect vs norm-conforming investor behavior," Managerial Finance, Emerald Group Publishing, vol. 36(10), pages 876-885, August.
  • Handle: RePEc:eme:mfipps:v:36:y:2010:i:10:p:876-885
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    References listed on IDEAS

    as
    1. Fama, Eugene F. & French, Kenneth R., 1997. "Industry costs of equity," Journal of Financial Economics, Elsevier, vol. 43(2), pages 153-193, February.
    2. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    3. 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.
    4. 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.
    5. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Abbes, Mouna Boujelbène & Abdelhédi-Zouch, Mouna, 2015. "Does hajj pilgrimage affect the Islamic investor sentiment?," Research in International Business and Finance, Elsevier, vol. 35(C), pages 138-152.
    2. repec:bla:acctfi:v:57:y:2017:i:1:p:3-46 is not listed on IDEAS
    3. Liston, Daniel Perez, 2016. "Sin stock returns and investor sentiment," The Quarterly Review of Economics and Finance, Elsevier, vol. 59(C), pages 63-70.
    4. Daniel Perez-Liston & Daniel Huerta & Sanzid Haq, 2016. "Does investor sentiment impact the returns and volatility of Islamic equities?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 40(3), pages 421-437, July.
    5. repec:eee:intfin:v:50:y:2017:i:c:p:119-134 is not listed on IDEAS
    6. 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.
    7. Sebastian Lobe & Christian Walkshäusl, 2016. "Vice versus virtue investing around the world," Review of Managerial Science, Springer, vol. 10(2), pages 303-344, March.
    8. repec:eco:journ1:2018-02-28 is not listed on IDEAS

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