Fewer Reasons to Sin: A Five-Factor Investigation of Vice Stocks

40 Pages Posted: 20 Jan 2017 Last revised: 14 Jul 2017

See all articles by Greg M. Richey

Greg M. Richey

California State University, San Bernardino

Date Written: January 18, 2017


This paper investigates the return performance of a portfolio of U.S. “vice stocks,” firms that manufacture and sell products such as alcohol, tobacco, gaming services and national defense. In my research, I examine a portfolio of sixty one vice stocks over the period 1996 to 2016. Using daily return data, I compute the Jensen’s alpha (CAPM), Fama-French Three Factor, Carhart FourFactor, and Fama-French Five-Factor results for the complete vice portfolio, and each vice industry individually. Results from the CAPM, Fama-French Three Factor Model, and the Carhart FourFactor Model show a positive and significant alpha for the vice portfolio throughout the sample period. However, the alpha’s significance disappears with the addition of the explanatory variables from the Fama-French Five-Factor Model. Further, after controlling for the Five-Factor model variables, the significance of the alpha disappears in the vice industry returns. However, the alpha maintains its significance during a bull market subsample.

Keywords: Vice Investing, Sin Stocks, Fama-French Five-Factor Model, Carhart Model

JEL Classification: G11, G12, G19, M14

Suggested Citation

Richey, Greg M., Fewer Reasons to Sin: A Five-Factor Investigation of Vice Stocks (January 18, 2017). Available at SSRN: https://ssrn.com/abstract=2901795 or http://dx.doi.org/10.2139/ssrn.2901795

Greg M. Richey (Contact Author)

California State University, San Bernardino ( email )

San Bernardino, CA 92407
United States

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