Sin stock returns and new sin industries: Evidence from developed and emerging markets

Abstract

This study examines the return performance of commonly studied sin industries and potential new sin industries in developed and emerging markets during 2006-2022. The value-weighted traditional sin portfolio yields monthly five-factor alpha of 0.43% in the developed markets and 1.6% in the emerging markets. The alphas are robust in significance, but portfolio composition affects their size. The new sin portfolio does not yield alpha in the whole sample period or the subsample period 2016-2022, marked by the adoption of the Paris Agreement. However, the coal industry portfolio yields significant five-factor alpha in the post-Paris Agreement period in developed markets. The findings suggest that the traditional sin industries persist in their sinfulness even in less-researched emerging markets, and the coal industry is emerging as a new sin industry.