Pricing Sin Stocks: Ethical Preference vs. Risk Aversion

63 Pages Posted: 12 Jul 2018

See all articles by Stefano Colonnello

Stefano Colonnello

Otto-von-Guericke-Universität Magdeburg; Halle Institute for Economic Research

Giuliano Curatola

Goethe University Frankfurt - Research Center SAFE

Alessandro Gioffré

University of Florence - Department of Economics and Management; Goethe University Frankfurt - Research Center SAFE

Multiple version iconThere are 2 versions of this paper

Date Written: July 14, 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 (July 14, 2018). SAFE Working Paper No. 216. Available at SSRN: https://ssrn.com/abstract=3206538 or http://dx.doi.org/10.2139/ssrn.3206538

Stefano Colonnello

Otto-von-Guericke-Universität Magdeburg

Universitaetsplatz 2
PSF 4120
Magdeburg, D-39106
Germany

Halle Institute for Economic Research ( email )

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

Giuliano Curatola (Contact Author)

Goethe University Frankfurt - Research Center 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

Goethe University Frankfurt - Research Center SAFE ( email )

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

Register to save articles to
your library

Register

Paper statistics

Downloads
32
Abstract Views
310
PlumX Metrics