Pricing Sin Stocks: Ethical Preference vs. Risk Aversion
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Date
2018-06-14
Author
Colonnello, Stefano
Curatola, Giuliano
Gioffré, Alessandro
SAFE No.
216
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Abstract
We develop a model that reproduces the average return and volatility spread between sin and non-sin stocks. Our investors do not necessarily boycott sin companies. Rather, they are open to invest in any company while trading off dividends against ethicalness. We show that when dividends and ethicalness are complementary goods and investors are sufficiently risk averse, the model predicts that the dividend share of sin companies exhibits a positive relation with the future return and volatility spreads. Our empirical analysis supports the model's predictions.
Research Area
Financial Markets
Keywords
asset pricing, general equilibrium, sin stocks
JEL Classification
D51, D91, E20, G12
Topic
Corporate Finance
Consumption
Saving and Borrowing
Consumption
Saving and Borrowing
Relations
1
Publication Type
Working Paper
Link to Publication
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- LIF-SAFE Working Papers [334]