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The Determinants of Sin Stock Returns: Evidence on the European Market

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  • Julie Salaber

    () (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

Abstract

This article deals with the time-series variation in average sin stock returns – returns on publicly-traded companies involved in producing tobacco, alcohol, and gaming. Next to nothing has been written about this class of stocks, especially on the European stock market. The hypothesis I explore in this paper is that sin stock returns depend on legal and cultural characteristics such as religious preferences, the level of excise taxation, and the degree of litigation risk. Using data on 18 European countries over the period 1975-2006, my results show evidence that Protestants are more “sin averse” than Catholics, and require a significant premium on sin stocks. Moreover, sin stocks have higher risk-adjusted returns when they are located in a country with high excise taxation; and sin stocks outperform other stocks when the litigation risk is higher, even after controlling for well-known risk factors such as market capitalization and book-to-market ratio. These findings suggest that sin stock returns depend on both legal and religious environments of each country.

Suggested Citation

  • Julie Salaber, 2007. "The Determinants of Sin Stock Returns: Evidence on the European Market," Working Papers halshs-00170219, HAL.
  • Handle: RePEc:hal:wpaper:halshs-00170219
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00170219
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    File URL: https://halshs.archives-ouvertes.fr/halshs-00170219/document
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Leventis, Stergios & Hasan, Iftekhar & Dedoulis, Emmanouil, 2013. "The cost of sin: The effect of social norms on audit pricing," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 152-165.
    2. Benjamin R. Auer, 2016. "Do Socially Responsible Investment Policies Add or Destroy European Stock Portfolio Value?," Journal of Business Ethics, Springer, vol. 135(2), pages 381-397, May.
    3. Jiří Strouhal & Natalja Gurvitš & Monika Nikitina-Kalamäe & Emilia Startseva, 2015. "Finding the Link between CSR Reporting and Corporate Finan-cial Performance: Evidence on Czech and Estonian Listed Com-panies," Central European Business Review, University of Economics, Prague, vol. 2015(3), pages 48-59.
    4. Colonnello, Stefano & Curatola, Giuliano & Gioffré, Alessandro, 2017. "Pricing sin stocks: Ethical preference vs. risk aversion," IWH Discussion Papers 20/2017, Halle Institute for Economic Research (IWH).
    5. El Ghoul, Sadok & Guedhami, Omrane & Kwok, Chuck C.Y. & Mishra, Dev R., 2011. "Does corporate social responsibility affect the cost of capital?," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2388-2406, September.
    6. Fauver, Larry & McDonald, Michael B., 2014. "International variation in sin stocks and its effects on equity valuation," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 173-187.
    7. repec:kap:jbuset:v:143:y:2017:i:4:d:10.1007_s10551-016-3072-3 is not listed on IDEAS
    8. repec:eee:finana:v:52:y:2017:i:c:p:172-189 is not listed on IDEAS

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