Shunned Stocks and Market States

European Journal of Finance, Forthcoming

29 Pages Posted: 6 Dec 2021

See all articles by Xing Han

Xing Han

University of Auckland Business School; Ghent University - Department of Financial Economics

Youwei Li

Hull University Business School

Olena Onishchenko

University of Otago

Date Written: October 1, 2021

Abstract

Hong and Kacperczyk (2009, The price of sin: The effects of social norms on markets. Journal of Financial Economics 93(1), 15–36) document that “sin stocks” (alcohol, tobacco, and gambling) earn relatively high returns on a risk-adjusted basis. We revisit their original study with an updated sample. Contrary to the stylized facts that prominent anomalies attenuate out-of-sample or in the post-publication period (McLean and Pontiff, 2016, Does academic research destroy stock return predictability? The Journal of Finance 71, 5-32), we document that the superior performance of sin stocks has persisted over the most recent decade (2009–2018). This is consistent with the increased popularity of socially responsible investing over recent decades, pushing more norm-constrained investors away from sin stocks. Further analyses suggest that sin stocks outperform in low-liquidity states and in high-uncertainty states and are recession-proof. Overall, our work supports the shunned stock hypothesis and indicates the price of sin stocks is alive and well.

Keywords: Sin stocks, Social norms, Shunned stock hypothesis, Market states

JEL Classification: G11, D71

Suggested Citation

Han, Xing and Li, Youwei and Onishchenko, Olena, Shunned Stocks and Market States (October 1, 2021). European Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3976559

Xing Han

University of Auckland Business School ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand

Ghent University - Department of Financial Economics ( email )

Sint-Pietersplein 5
Ghent, 9000
Belgium

Youwei Li (Contact Author)

Hull University Business School ( email )

University of Hull
Hull, HU6 7RX
United Kingdom

Olena Onishchenko

University of Otago ( email )

P.O. Box 56
Dunedin, Otago 9010
New Zealand

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