eThesis - Kauppakorkeakoulun sähköiset gradut

PURPOSE OF THE STUDY The objective of this study is to find out if stocks of companies operating on alcohol, tobacco and gambling industry have historically outperformed the market. The interpolation to previous research is that I also include transatlantic evidence. My hypothesis is that sin stocks gain excess return due to their neglect and that excess return is different for different sin industries on different continents due to the magnitude of the neglect. The study also explains its findings through some descriptive statistics and through short review of history of aforementioned industries.

DATA The data consists of all publicly traded equity issues of companies operating on alcohol, tobacco or gambling industry. Companies are listed in North-America or in Europe. I compare the logarithmic change of monthly return index of sin portfolios with market index. Main method used is the Fama- French adjusted CAPM three factor model. Moreover I run the Fama-French adjusted CAPM regression for all three industry portfolios for both continents.

RESULTS I find that North-American sin portfolio does not generate statistically significant excess return but European portfolio does. Furthermore I find that all three sin sub portfolios, alcohol, tobacco and gambling, generate more excess return in Europe than in North-America. Of the six geographically divided industry portfolios, statistically significant excess return has historically appeared only in the European tobacco portfolio and in the European alcohol portfolio.