The Impact of Behavioral Factors on the Performance of Sin Stocks Compared to Non-sin Stocks

Abstract

This paper investigates the performance of sin stocks compared to non-sin stocks and evaluates the impact of behavioral factors on stock performance. Furthermore, we analyze whether sin stocks moderate the impact of behavioral factors on stock returns. Behavioral factors investigated are proxied by the volatility index (VIX), Investopedia Anxiety Index (IAI), and the Fear and Greed Index (FG). Sin stocks used in this study are those of companies that deal in alcohol, tobacco, and gambling products. We use propensity score matching to control for differences in firm size, age, risk, and liquidity. Analysis of our matched sample, using data between 2011 to 2019, shows that the average return is higher for sin stocks compared to non-sin stocks. We also find that behavioral factors have a significant impact on stock returns. The VIX and IAI have a positive and significant contemporaneous impact on stock returns, while the impact of the FG index is negative and significant. Our results further show that SIN moderates the impact of the VIX, IAI and FG indices on excess returns.