Investing in Sin Pays

A recent paper says that investors gain 2.5% higher returns every year, on a risk-adjusted basis, by investing in "sin" stocks–publicly traded companies involved in alcohol, tobacco, and gaming–versus investing in stocks with comparable characteristics.

According to a press release, the study also found that there is a societal norm against funding operations that promote vice and that some institutional investors, such as pension plans, hold less of these stocks than other investors and miss out on the gains. In addition, “sin” stocks receive less analyst coverage than stocks with comparable characteristics.

“This research shows that social norms are important for economic outcomes and that they affect markets, including investment decisions, stock prices, and returns,” said NYU Stern Assistant Professor of Finance Marcin Kacperczyk, who co-authored the study paper with Harrison Hong from Princeton University.

Their paper, “The Price of Sin: The Effects of Social Norms on Markets,” is available here.