Social Screens and Systematic Investor Boycott Risk

We model the pricing implications of screens adopted by socially responsible investors. The model reproduces the empirically observed abnormal return to sin stock and implies a premium for systematic investor boycott risk that affects targeted as well as nontargeted firms. The investor boycott premi...

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Bibliographic Details
Published in:Journal of financial and quantitative analysis 2017-02, Vol.52 (1), p.365-399
Main Authors: Luo, H. Arthur, Balvers, Ronald J.
Format: Article
Language:English
Subjects:
Abnormal returns
Boycotts
Business cycles
Capital assets
Community development banks
Comptrollers
Investments
Investors
Quantitative analysis
Risk factors
Risk premiums
Social investing
Social responsibility
Stocks
Studies
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Summary:We model the pricing implications of screens adopted by socially responsible investors. The model reproduces the empirically observed abnormal return to sin stock and implies a premium for systematic investor boycott risk that affects targeted as well as nontargeted firms. The investor boycott premium is not displaced by litigation risk, measures of neglect effect, illiquidity, industry momentum, or concentration. The investor boycott risk factor is useful in explaining mean returns across industries, and its premium varies with the relative wealth of socially responsible investors and the business cycle.
ISSN:0022-1090
1756-6916
DOI:10.1017/S0022109016000910