TY - JOUR
T1 - Wealth and familiarity bias
T2 - sin stocks investment in Europe
AU - Hamdan, Mohammed
AU - Calavia, Pedro Fernandez
AU - Aminu, Nasir
N1 - Publisher Copyright:
© The Author(s) 2024.
PY - 2024/5/22
Y1 - 2024/5/22
N2 - Our study investigates the relationship between European society’s wealth and how they invest in sin stocks—stocks of listed firms involved in producing tobacco, alcohol, and gambling goods and services returns. Using time series data from 24 European countries from 2000 to 2020 to check the performance of sin stocks, we tested 3 hypotheses to explore the possibility that sin stock returns are related to the wealth of the countries they are based on and to the levels of consumption of alcohol and gambling in those countries. Three quantitative methods are used to measure risk-adjusted returns of the sin stocks: the CAPM single-factor or market model, the Fama-French 3-factor model, and the Fama-French 5-factor model. We found significant evidence of the existence of abnormal returns. The evidence supports that sin stocks have a significant relation with the market, lower volatility, and have better risk-adjusted returns during times of economic downturn. Our results show that sin stocks from the wealthier Northern European countries yield higher risk-adjusted returns than their Southern and Easter European counterparts. We found familiarity bias in gambling sin stocks, which suggests that getting used to something seen as sinful can lead to a lower feeling of rejection. As it is common in behavioural finance, behind the data and numbers of the financial markets, ordinary human behaviour is an essential explanation that defies the orthodox concepts of mathematical efficiency.
AB - Our study investigates the relationship between European society’s wealth and how they invest in sin stocks—stocks of listed firms involved in producing tobacco, alcohol, and gambling goods and services returns. Using time series data from 24 European countries from 2000 to 2020 to check the performance of sin stocks, we tested 3 hypotheses to explore the possibility that sin stock returns are related to the wealth of the countries they are based on and to the levels of consumption of alcohol and gambling in those countries. Three quantitative methods are used to measure risk-adjusted returns of the sin stocks: the CAPM single-factor or market model, the Fama-French 3-factor model, and the Fama-French 5-factor model. We found significant evidence of the existence of abnormal returns. The evidence supports that sin stocks have a significant relation with the market, lower volatility, and have better risk-adjusted returns during times of economic downturn. Our results show that sin stocks from the wealthier Northern European countries yield higher risk-adjusted returns than their Southern and Easter European counterparts. We found familiarity bias in gambling sin stocks, which suggests that getting used to something seen as sinful can lead to a lower feeling of rejection. As it is common in behavioural finance, behind the data and numbers of the financial markets, ordinary human behaviour is an essential explanation that defies the orthodox concepts of mathematical efficiency.
KW - CAPM
KW - Ethical investing
KW - Familiarity bias
KW - Portfolio returns
KW - Sin stocks
KW - Size premium
UR - http://www.scopus.com/inward/record.url?scp=85193801299&partnerID=8YFLogxK
U2 - 10.1057/s41260-024-00360-5
DO - 10.1057/s41260-024-00360-5
M3 - Article
AN - SCOPUS:85193801299
SN - 1470-8272
VL - 25
SP - 714
EP - 725
JO - Journal of Asset Management
JF - Journal of Asset Management
IS - 7
ER -