A comparison of sin- and ethical stocks’ performance on the Swedish equity market: with focus on the impact of liquidity, institutional ownership, firm age and equity on the difference in excess returns between sin- and ethical stocks.

Sammanfattning: This thesis studies the returns of ESG stocks and sin stocks through constructed value- and equally weighted portfolios in the Swedish stock market. The stocks are also compared on a firm level. The excess returns obtained from the ESG and sin stocks are compared to each other to see how they can be explained by the key variable’s liquidity, institutional ownership, firm age1 and book value of equity. This is accomplished through the usage of OLS regressions and panel data. It is found that both ESG and sin stocks overperform against the market when the stocks are constructed as portfolios. When comparing these stocks on a firm level with the usage of panel data, it is however found that ESG stocks still overperform the market while sin stocks underperform. The consistency in the returns of ESG stocks is therefore higher. When comparing the excess returns (alpha) between ESG and sin stocks it is found that liquidity, institutional ownership and firm age have an effect on this difference in excess returns, while the book value of equity was found to be insignificant. Moreover, in accordance with the efficient market hypothesis, the market is inefficient in the pricing of these stocks. Furthermore, this thesis contributes to the field of investment ethics by showing the aforementioned, the authors2 have not found a previous study that incorporates these factors to explain the difference in the alpha of ESG and sin stocks on the Swedish stock market. These results also contribute to the ongoing stakeholder and shareholder theory debate, where having an all or nothing mindset is indicated to be insufficient.