We develop an ethical preference-based model that reproduces the average return and volatility spread between sin and non-sin stocks. Our investors do not necessarily boycott sin companies. Rather, they are open to invest in any company while trading off dividends against ethicalness. When dividends and ethicalness are complementary goods and investors are sufficiently risk averse, the model predicts that the dividend share of sin companies exhibits a positive relation with the future return and volatility spreads. An empirical analysis supports the model’s predictions. Taken together, our results point to the importance of ethical preferences for investors’ portfolio choices and asset prices.
Pricing sin stocks: Ethical preference vs. risk aversion / Stefano Colonnello, Giuliano Curatola, Alessandro Gioffré. - In: EUROPEAN ECONOMIC REVIEW. - ISSN 0014-2921. - ELETTRONICO. - 118:(2019), pp. 69-100. [10.1016/j.euroecorev.2019.04.006]
Pricing sin stocks: Ethical preference vs. risk aversion
Alessandro Gioffré
2019
Abstract
We develop an ethical preference-based model that reproduces the average return and volatility spread between sin and non-sin stocks. Our investors do not necessarily boycott sin companies. Rather, they are open to invest in any company while trading off dividends against ethicalness. When dividends and ethicalness are complementary goods and investors are sufficiently risk averse, the model predicts that the dividend share of sin companies exhibits a positive relation with the future return and volatility spreads. An empirical analysis supports the model’s predictions. Taken together, our results point to the importance of ethical preferences for investors’ portfolio choices and asset prices.I documenti in FLORE sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.