Pricing Sin Stocks: Ethical Preference vs. Risk Aversion

60 Pages Posted: 20 Mar 2017 Last revised: 20 May 2018

See all articles by Stefano Colonnello

Stefano Colonnello

Ca Foscari University of Venice; Halle Institute for Economic Research

Giuliano Curatola

University of Siena - Department of Economics and Statistics; Leibniz Institute for Financial Research SAFE

Alessandro Gioffré

University of Florence - Department of Economics and Management; Leibniz Institute for Financial Research SAFE

Multiple version iconThere are 2 versions of this paper

Date Written: May 19, 2018

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.

Keywords: Asset Pricing, General Equilibrium, Sin Stocks

JEL Classification: D51, D91, E20, G12

Suggested Citation

Colonnello, Stefano and Curatola, Giuliano and Gioffré, Alessandro, Pricing Sin Stocks: Ethical Preference vs. Risk Aversion (May 19, 2018). Available at SSRN: https://ssrn.com/abstract=2934914 or http://dx.doi.org/10.2139/ssrn.2934914

Stefano Colonnello

Ca Foscari University of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Giuliano Curatola (Contact Author)

University of Siena - Department of Economics and Statistics ( email )

Piazza San Francesco 7
Siena, Siena 53100
Italy

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Alessandro Gioffré

University of Florence - Department of Economics and Management ( email )

Via delle Pandette, 9
Firenze, Florence 50127
Italy

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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