Social Screens and Systematic Boycott Risk

77 Pages Posted: 26 Aug 2014 Last revised: 10 Apr 2015

See all articles by H. Arthur Luo

H. Arthur Luo

Government of the United States of America - Office of the Comptroller of the Currency (OCC); McMaster University

Ronald J. Balvers

McMaster University - Michael G. DeGroote School of Business

Date Written: March 26, 2015

Abstract

We consider the pricing implications of screens adopted by socially responsible investors. A model including such investors reconciles the empirically observed risk-adjusted sin-stock abnormal return with a systematic “boycott risk premium” which has a substantial financial impact that is, however, not limited to the targeted firms. The boycott effect cannot be displaced by litigation risk, a neglect effect, and liquidity considerations, or by industry momentum and concentration. The boycott risk factor is valuable in explaining cross-sectional differences in mean returns across industries and its premium varies directly with the relative wealth of socially responsible investors and with the business cycle.

Keywords: Social Screens, Sin Stocks, Investment Boycotts, Systematic Risk

JEL Classification: G12

Suggested Citation

Luo, Hao and Balvers, Ronald J., Social Screens and Systematic Boycott Risk (March 26, 2015). Available at SSRN: https://ssrn.com/abstract=2474255 or http://dx.doi.org/10.2139/ssrn.2474255

Hao Luo

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

250 E Street, SW
Washington, DC 20219
United States

McMaster University ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

Ronald J. Balvers (Contact Author)

McMaster University - Michael G. DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada
(905) 525-9140 x23969 (Phone)

HOME PAGE: http://profs.degroote.mcmaster.ca/business/balvers

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