Sin Stock Returns Over the Business Cycle

29 Pages Posted: 5 Aug 2009

See all articles by Julie M. Salaber

Julie M. Salaber

University of Bath School of Management

Date Written: April 24, 2009


This paper mitigates previous evidence of out-performance of sin stocks – stocks of companies involved in producing tobacco, alcohol and gaming – on the U.S. market. It has been shown empirically that sin stocks earn an abnormal risk-adjusted return compared to industries with similar characteristics. Based on a conditional analysis accounting for different business conditions, I invalidate this hypothesis by first testing a conditional model using different macroeconomic variables and second by looking at earnings growth over expansion and recession periods. Thus, even though sin stocks are unique because of the addictive nature of sin consumption, they are only as recession-proof as some other industry-comparable stocks. However, I find evidence that sin stocks still outperform the overall market during bad times, meaning that socially responsible investors pay a financial cost when avoiding these stocks because of social and ethical criteria.

Keywords: sin stocks, conditional models, business cycles, earnings

JEL Classification: C22, G12, G14

Suggested Citation

Salaber, Julie M., Sin Stock Returns Over the Business Cycle (April 24, 2009). Available at SSRN: or

Julie M. Salaber (Contact Author)

University of Bath School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

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