A master thesis from Aalborg University
Do Sin Stocks Outperform the Market? A European Multi-Factor Analysis: A European Multi-Factor Analysis
[Do Sin Stocks Outperform the Market? A European Multi-Factor Analysis]
Author(s)
Term
4. semester
Publication year
2025
Submitted on
2025-06-01
Pages
95 pages
Abstract
Motivated by the paradox of sin stocks outperforming despite ESG-related stigmas, this thesis examines whether European sin stocks—listed firms in the alcohol, tobacco, and gambling industries—deliver superior financial performance, and what drives this effect. It investigates the persistence of the sin premium, its sensitivity to economic regimes, and whether its magnitude has diminished over time. Using monthly data from 2005 to 2024, sin stock portfolios are constructed using equal, value, and industry weighting methods. Performance is evaluated through CAPM, Fama-French 3- and 5-factor models, and an extended 5-factor model including a defensive (DEF) factor. Risk- adjusted metrics—Sharpe, Sortino, and Treynor ratios—complement the regression-based analysis. Recession and post-2016 subsamples allow for evaluation across time and macroeconomic conditions. Results confirm the existence of a sin premium, particularly in EW and IW portfolios, which consistently generate positive alpha and superior risk-adjusted returns. VW portfolios underperform, reflecting their concentration in large-cap stocks. Tobacco stocks stand out for their resilience during downturns, offering the strongest support for defensive characteristics among sin industries. A clear decline in abnormal returns and performance ratios after 2016 suggests that ESG pressures and market segmentation may have eroded the premium. Overall, the study provides a comprehensive assessment of sin stock performance in Europe, emphasizing that returns are shaped by portfolio design, market cycles, and evolving investor norms. The findings offer practical insights for both ethically constrained and unconstrained investors navigating a changing financial landscape.
Keywords
Documents
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