To Sin or Not to Sin? A Study of Traditional and New Sin Stocks on the American Stock Market

Abstract: This study aims to investigate the difference in stock return between traditional sin stocks, new sin stocks, and their respective peer stocks. The purpose was to expand the scarcely researched area of new sin stocks by being the first one to focus on new sin stocks on the American stock market (United States NYSE, AMEX, and NASDAQ stock exchanges), as this area has only been researched in Europe before. The study was conducted on monthly stock-return data for the period 2006-2022 by forming four portfolios of stocks and running 18 time-series regressions. The study compared several regressions using the Fama-French Three- and Five-factor models and Carhart’s Four-factor model to meet the research aims, objectives, and purpose. The results suggest that traditional sin stocks perform better than new sin stocks on the American stock market. Also, it concluded that there seems to be a difference in how the American and European stock markets view sustainable investments and new sin stocks. The study suggested that these differences come from social norms differing between these regions. The practical implications for an investor are that there are investments, such as traditional sin stocks, where the view of social norms and a positive financial return oppose each other. On the contrary, in the case of new sin stocks, the view of social norms and financial results both suggest avoiding the industry.