The two papers we examine look into the historically strong performance (and recent weak performance) of what are known as “sin” stocks; typically those that produce alcohol, tobacco and weapons.

Summary

The two papers we examine look into the historically strong performance (and recent weak performance) of what are known as “sin” stocks; typically those that produce alcohol, tobacco and weapons. They find that while the outperformance has been strong, it is entirely driven by common return factors embedded in well-known models. Interestingly, ESG ratings for sin stocks are quite good. Recent papers by Blitz and Fabozzi (Robeco, 2017) and Jorgensen (UBS, 2019) discuss the impact of excluding what are known as “sin” stocks from a portfolio. Here we summarise the conclusions of those two papers.

What are "sin" stocks? 

“Sin” stocks are usually considered to be those whose activities are dominated by what would be considered unethical or immoral activity.There are a few different definitions that have been used to classify these stocks, but the most common stems from Fabozzi, Ma and Oliphant (2008) [FMO2008]: alcohol, tobacco, gambling, adult entertainment and weapons. 

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