Returns to Unethical Investing: New evidence on sin stock performance in Europe:

Abstract: This paper studies the returns to unethical investing in Europe over the time period 1965 through 2011. Using a sample of 285 alcohol, defence, gambling and tobacco stocks, it is first shown that the slight sin stock outperformance found is attributable solely to the tobacco industry. Thus, contrary to evidence from American and Asian markets, most sin industries outperform neither the market nor portfolios of comparable industries. Second, it is hypothesized that the returns to unethical investing have increased due to an increased neglect of sin stocks stemming from a rise in socially responsible investing. Inconsistent with this hypothesis, it is shown that the increase is not present uniformly throughout the sin industries. Instead, the outperformance once again pertains exclusively to the tobacco index, which exhibits a substantial upward trend in its outperformance.