Does excluding sin stocks cost performance?

Blitz, David; Swinkels, Laurens

doi:10.1080/20430795.2021.1972789

Cited by 6 publications

(6 citation statements)

References 45 publications

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“…Kempf and Osthoff (2007) also concluded that it is not possible to achieve significant abnormal returns by employing negative screening. Blitz and Swinkels (2021) also confirmed that excluding sin stocks involves risk related to market and peers, thus confirming the previous studies. Positive and best-in-class screening techniques deliver abnormal returns, the maximum being in the latter technique.…”

Section: The Investment Performance Of Srisupporting

confidence: 88%

Screening activity matters: Evidence from ESG portfolio performance from an emerging market

Beloskar

Rao

2023

Int. J Fin Econ

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Socially Responsible Investments (SRI) have recently generated much interest among asset owners, managers and academicians. Though the Efficient Market Theory suggests that stock prices fully reflect all available information, few existing studies indicate that Environmental, Social and Governance (ESG) portfolios deliver superior risk‐adjusted performance. ESG investing is at a nascent stage in India but is growing rapidly, especially after the COVID‐19 pandemic. Asset managers always face the dilemma of choosing between different screening methods, screening intensities and stock weighting schemes to deliver outperformance. Our study attempts to investigate the impact of these portfolio construction criteria on the risk‐adjusted performance of ESG portfolios in India. Our results show that there exists a trade‐off between superior investment performance and unsystematic risk of ESG portfolios. Investors can benefit from investing in equally‐weighted best‐in‐class portfolios constructed using ESG scores. We highlight the implications of our findings for asset owners, managers, index providers and regulators, and also provide directions for future research in the area of ESG portfolio management.

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Section: The Investment Performance Of Srisupporting

confidence: 88%

Screening activity matters: Evidence from ESG portfolio performance from an emerging market

Beloskar

Rao

2023

Int. J Fin Econ

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“…This stance has a theoretical foundation in literature as well where actualized returns are inversely related to expected returns (Fama and French, 2002; Pástor and Stambaugh, 2001, 2009). Blitz and Swinkels (2021) also argue that excluding sin stocks can cost portfolio performance in terms of expected returns unless the gap is filled by stocks that have similar characteristics. The fact that our results during the COVID period indicate a small portion, if not outright exclusion, of sin stocks in the portfolio also points towards a similar scenario for the future.…”

Section: Resultsmentioning

confidence: 99%

“…The debate on the superiority of green vis-a-vis sin investments has continued unabated [Statman, 2000, Schroder, 2004, Cui, 2007, L opez et al, 2007, Fabozzi et al, 2008, Renneboog et al, 2008, Hong and Kacperczyk, 2009, Kim and Venkatachalam, 2011, P erez-Gladish et al, 2013, Nofsinger and Varma, 2014, Peylo and Schaltegger, 2014, Leite and Cortez, 2015, Junkus and Berry, 2015, Trinks and Scholtens, 2017, Garvey et al, 2018, Duran-Santomil et al, 2019, Chang et al, 2019, Bolton and Kacperczyk, 2021, Rehman et al, 2021, Aswani et al, 2022, Blitz and Swinkels, 2021, P astor et al, 2022, Vymyatnina and Chernykh, 2022.…”

Section: Introductionmentioning

confidence: 99%

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Sin versus green investment: A retrospective study on investor choice during pre- and through COVID regime

Bhatnagar

Bhullar

2023

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PurposeIncreasing focus on socially responsible investments (SRIs) and green projects in recent times, coupled with the arrival of COVID pandemic, are the main drivers of this study. The authors conduct a post-factum analysis of investor choice between sin and green investments before and through the COVID outbreak.Design/methodology/approachA passive investor is introduced who seeks maximum risk-adjusted return and/or investment variance. When presented an opportunity to add sin and/or green investments to her initial one-asset market-only investment position, she views and handles this issue as a portfolio problem (MPT). She estimates value-at-risk (VaR) and conditional-value-at-risk (CVaR) for portfolios to account for downside risk.FindingsGreen investments offer better overall risk-return optimization in spite of major inter-period differences in return-risk dynamics and substantial downside risk. Portfolios optimized for minimum variance perform just as well as the ones optimized for minimum downside risk. Return and risk have settled at higher levels since the onset of COVID, resulting in shifting the efficient frontier towards north-east in the return-risk space.Originality/valueThe study contributes to the literature in two ways: One, it examines investor choice between sin and green investments during a global health emergency and views this choice against the one made during normal times. Two, instead of using the principles of modern portfolio theory (MPT) explicitly for diversification, the study uses them to identify investor preference for one over the other investment type. This has not been widely done thus far.

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“…These firms in sectors typically labelled as unethical, like stocks from alcohol, tobacco, and gambling industries, yield higher returns above the market average. A significant body of this literature supports the observation that sin stocks consistently deliver higher risk-adjusted returns compared to broader market indices, showing their unique position in the investment field (Bannier et al 2023;Blitz and Swinkels 2023;Han et al 2022). Investors are now creating their list of sin stocks for avoidance as they do not want to be involved in such unethical activities.…”

Section: Introductionmentioning

confidence: 82%

Wealth and familiarity bias: sin stocks investment in Europe

Hamdan,

Calavia,

Aminu

2024

J Asset Manag

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Our study investigates the relationship between European society’s wealth and how they invest in sin stocks—stocks of listed firms involved in producing tobacco, alcohol, and gambling goods and services returns. Using time series data from 24 European countries from 2000 to 2020 to check the performance of sin stocks, we tested 3 hypotheses to explore the possibility that sin stock returns are related to the wealth of the countries they are based on and to the levels of consumption of alcohol and gambling in those countries. Three quantitative methods are used to measure risk-adjusted returns of the sin stocks: the CAPM single-factor or market model, the Fama-French 3-factor model, and the Fama-French 5-factor model. We found significant evidence of the existence of abnormal returns. The evidence supports that sin stocks have a significant relation with the market, lower volatility, and have better risk-adjusted returns during times of economic downturn. Our results show that sin stocks from the wealthier Northern European countries yield higher risk-adjusted returns than their Southern and Easter European counterparts. We found familiarity bias in gambling sin stocks, which suggests that getting used to something seen as sinful can lead to a lower feeling of rejection. As it is common in behavioural finance, behind the data and numbers of the financial markets, ordinary human behaviour is an essential explanation that defies the orthodox concepts of mathematical efficiency.

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Does excluding sin stocks cost performance?

Cited by 6 publications

References 45 publications

Screening activity matters: Evidence from ESG portfolio performance from an emerging market

Screening activity matters: Evidence from ESG portfolio performance from an emerging market

Sin versus green investment: A retrospective study on investor choice during pre- and through COVID regime

Wealth and familiarity bias: sin stocks investment in Europe

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