Does ESG rating affect sin stock performance? Evidence from sin stocks in US markets

Abstract

Sin stocks and ESG are two sides of a story that has received extensive attention separately, but not many researchers have looked at the possibility to connect the two. Previous research show puzzling evidence about a sin stock anomaly that has been known for years, and positive CFP associated with CSP. Our research will step into the research area where we look at both ESG and sin stocks connected. This thesis will investigate the relationship between ESG-scores and sin stocks, by looking at publicly traded companies in the US During 2002-2019. In this paper we will present new evidence on how sin stocks outperform the rest of the stock market. Previous research papers have proven the abnormal return to be true, but not accounted for the ESG Scores. When using ESG Scores as a criterion to form our various sin stock portfolios, we found that sin stocks with a bad ESG Score, or with no ESG Score, outperformed sin stocks with a good ESG Score.