From Vice to Virtue: Study Indicates Sin Stocks Outperform the Market

Eddy Elfenbein submits: Personally, I don’t see anything morally wrong with drinking, gambling or smoking, but much of society seems to frown on this. Since the beginning of the year, it’s been illegal to smoke in bars and restaurants in Washington. Now there’s some academic evidence that shows that “sin stocks” are pretty savvy investments.

"While sinful stocks aren’t necessarily good for the soul, they do deliver higher returns," said Marcin Kacperczyk, a professor at the Sauder School of Business at UBC. “There is a societal norm against funding operations that promote human vice and that some investors, particularly institutions subject to public scrutiny and social norms, pay a financial price for not holding these stocks,” the study said on Tuesday.

Sin stocks out perform their comparables by about 30 basis points a month, the study found. And they come cheap — the market-to-book ratios of sin stocks were on average about 15% lower than those of other companies between 1965 and 2004.

Here's the paper.