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Alcohol, tobacco, and gambling: Do “sin stocks” really outperform other publically listed companies? – Award winning paper by ICMA Centre academics

Award winning research “The Price of Sin Aversion” by ICMA Centre Associate Professor of Finance Andreas Hoepner and co-author Hampus Adamsson has hit the headlines this week, with the Financial Times featuring an article about it in their paper on Monday.

Hoepner and Adamsson’s paper brought to question the idea that “sin stocks” like alcohol, tobacco, and gambling outperformed other publically listed companies, as was originally documented in a previous piece of research by Hong & Kacperczyk (2009).

In the new paper, the academics reported that in previous studies there was a failure to address the company size when approaching “sin stocks”, and that smaller companies tended to outperform larger equivalents in the same industry.

When looking at portfolios that were value-weighted, the academics found “the alcohol, tobacco and sin portfolios do not exhibit any significant outperformance”. In the case of gambling portfolios, there was even a notable underperformance.

As well as being featured in the Financial Times, the research was also awarded “best quantitative paper” at a conference hosted by UN-backed group Principles for Responsible Investment (PRI), which also saw ICMA Centre PhD student Lisa Schopohl win “best student paper”.

One of the paper’s authors, Andreas Hoepner commented: “Investment committee members always have a view on environmental, social and governance (ESG) metrics and some might be sceptical about it. In the past, they might have referred to the sin stock studies — and now they have this study. We are certainly the first voice to say that, statistically, sin stocks do not outperform.”

When asked what impact the paper could have on investors, he said that he hoped it would “increase investor’s confidence that integrating ESG metrics is not harmful.”

Read the full article on the Financial Times here:

Download the full paper here:

Dr Andreas G. F. Hoepner

Visiting Professor
Published 15 September 2015
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