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The Risk of SIN Stocks

Date

2019-09-10

Journal Title

Journal ISSN

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Publisher

ORCID

Type

Thesis

Degree Level

Masters

Abstract

Previous studies suggest that SIN stocks, the stocks issued by firms engaged in socially or morally objectionable operations such as alcohol, tobacco, and gambling, are neglected by the market for a variety of reasons. Most published finance SIN studies proceed under the premise that SIN stocks are riskier than non-SIN stocks; however, in these studies, the risk is not explicitly quantified. Using annual North American data from 1980 to 2017, we investigate the risk of a subset of SIN stocks and compare it to that of a matched sample of non-SIN firms with similar characteristics. We focus on alcohol, tobacco and gambling securities and avoid grey stocks (ambiguous sin classification) in both the sin and non-SIN samples. Our results show that the risk of SIN stocks has declined over time and depends on the SIN category. In general, alcohol stocks have less systematic risk, idiosyncratic volatility, and total volatility relative to their non-SIN counterparts, regardless of time period, while tobacco stocks have significantly reduced systematic and total risk but increased idiosyncratic risk over time. Moreover, the heightened risk reputation associated with SIN stocks can be attributed to gambling stocks, but this volatility has also decreased over time: The impact of being classified as a gambling firm had a significantly positive impact on risk from 1980-1998 but no impact from 1999-2017. Further, the role of Corporate Social Responsibility (CSR) in mitigating the risk of SIN versus non-SIN stocks is also category sensitive. CSR reduces idiosyncratic volatility for alcohol firms but increases total volatility for tobacco firms and has no impact on the risk of gambling companies. These findings support the importance of measuring the changing nature of SIN stock risk by category and over time.

Description

Keywords

SIN stocks, Risk, Corporate Social Responsibility, Propensity Score Matching

Citation

Degree

Master of Science (M.Sc.)

Department

Edwards School of Business

Program

Finance

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DOI

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