Sin Stocks: An Analysis of the Sin Premium in the US, European, and Asia-Pacific Markets

Sammanfattning: This thesis aims to explain the return of so-called sin stocks, which include businesses operating in the alcohol, tobacco, gambling, weapon, and oil & gas industries. Due to their negative public perception, these stocks are anticipated to yield a sin premium. This study analyses the potential variation of sin premiums across three different markets, specifically the US, European, and Asia-Pacific markets. By employing three different factor models introduced by Fama and French and Carhart, we analyze the presence of a sin premium across the three markets. Our findings indicate that there is no consistent sin premium; however, investors may realize an outperformance by selectively investing in specific industries within the European (tobacco) and Asia-Pacific (alcohol and tobacco) markets. Furthermore, we investigate the behavior of sin stocks during both the financial crisis and the COVID-19 pandemic. Our analysis shows no discernible state-varying behavior in the US and European markets. Nonetheless, the Asia-Pacific market demonstrates an outperformance of alcohol stocks during the financial crisis and tobacco stocks during the COVID-19 crisis.