Sin stocks in European countries: The influence of wealth and familiarity bias on investment choices
-
DOIhttp://dx.doi.org/10.21511/imfi.20(2).2023.22
-
Article InfoVolume 20 2023, Issue #2, pp. 256-266
- Cited by
- 471 Views
-
189 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This study examines the relationship between the wealth of European societies and their investment decisions in «sinful» industries, including tobacco, alcohol, and gambling. The study aims to challenge the widely held belief that wealthier countries are more socially responsible in their investment choices and to investigate the impact of familiarity bias on investment decisions in these industries. An experimental research design with panel data compares the returns from a portfolio of sin stocks from Northern Europe with a portfolio of sin stocks from Southern and Eastern Europe. The study utilises multiple models, including the CAPM single-factor, the Fama-French three-factor, and the Fama-French five-factor, to measure the risk-adjusted returns of sin stocks across various European countries. Findings reveal that sin stocks from wealthier countries tend to have higher risk-adjusted returns compared to those from less wealthy countries. Sin stocks have a significant relation with the market, but their volatility is consistently lower. Countries that drink more alcohol are more willing to invest in alcohol stocks than countries that drink less, as these stocks outperform the market during economic downturns. Sin stocks impact financial performance, investor behaviour, social responsibility, market efficiency, and regulations. The study uncovers the influence of familiarity bias, indicating that investors from countries more accustomed to «sinful» activities are less reluctant to invest in such industries than countries with lower familiarity. This finding highlights the importance of cultural and social factors in shaping investment decisions and challenges traditional concepts of market efficiency.
- Keywords
-
JEL Classification (Paper profile tab)G40, G41
-
References20
-
Tables5
-
Figures0
-
- Table 1. Descriptive statistics of the dependent variables
- Table 2. Descriptive statistics of the explanatory variables
- Table 3. Regression output for North Europe and South and East Europe portfolios
- Table 4. Regression output for High Alcohol and Low Alcohol Portfolios
- Table 5. Regression output for High Gambling and Low Gambling Portfolios
-
- Blitz, D., & Fabozzi, F. J. (2017). Sin stocks revisited: Resolving the sin stock anomaly. The Journal of Portfolio Management, 44(1), 105-111.
- Brown, S. J., Goetzmann, W., Ibbotson, R. G., & Ross, S. A. (1992). Survivorship Bias in Performance Studies. The Review of Financial Studies, 5(4), 553-580.
- Fabozzi, F. J., Ma, K. C., & Oliphant, B. J. (2008). Sin stock returns. The Journal of Portfolio Management, 35(1), 82-94.
- Fama, E. F., & French, K. R. (2015). A Five-Factor Aset Pricing Model. Journal of Financial Economics, 116(1), 1-22.
- Fama, E. F. (1965). The Behavior of Stock-Market Prices. The Journal of Business, 38(1), 34-105.
- Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), 383-417.
- Fama, E. F., & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 3-56.
- French, K. R. (2020). Kenneth R. French – Data Library.
- Friedman, M. (1953). The case for flexible exchange rates. Essays in Positive Economics, 157, 203.
- Grittner, I., Kuntsche, S., Gmel, G., & Bloomfield, K. (2013). Alcohol consumption and social inequality at the individual and country levels – results from an international study. European Journal of Public Health, 23(2), 332-339.
- Hong, H., & Kacperczyk, M. (2009). The price of sin: The effects of social norms on markets. Journal of Financial Economics, 93(1), 15-36.
- Kim, I., & Venkatachalam, M. (2011). Are sin stocks paying the price for accounting sins? Journal of Accounting, Auditing & Finance, 26(2), 415-442.
- Lobe, S., & Walkshäusl, C. (2016). Vice versus virtue investing around the world. Review of Managerial Science, 10(2), 303-344.
- Mchughen, A. (2007). Public perceptions of biotechnology. Biotechnology Journal, 2, 1105- 11.
- Salaber, J. M. (2007). The Determinants of Sin Stock Returns: Evidence on the European Market (Working Paper). University of Bath School of Management.
- Salaber, J. M. (2009). Sin Stock Returns Over the Business Cycle (Working paper). University of Bath School of Management.
- US Department of the Treasury. (2020). Resource Center – Daily Treasury Yield Curve Rates.
- United Nations Statistics Division. (2020). Standard country or area codes for statistical use (M49).
- World Bank. (2020). World Bank Open Data.
- World Health Organization. (2019). Status report on alcohol consumption, harm and policy responses in 30 European countries.