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|Title:||Social screens and systematic boycott risk|
|Authors:||Hao, Luo (Arthur)|
Balvers, Ronald J.
Michael Lee-Chin & Family Institute for Strategic Business Studies
|Keywords:||Social screens;Sin stocks;Investment boycotts;Systematic risk|
|Series/Report no.:||Michael Lee-Chin & Family Institute for Strategic Business Studies Working Paper ; 2014-04|
|Abstract:||We consider the pricing implications of screens imposed by Socially Responsible Investing funds. The model extends standard risk-based asset pricing models by deriving as an additional systematic risk factor a portfolio of stocks shunned by a subgroup of institutional investors. We reconcile the empirically observed risk-adjusted sin-stock abnormal return with a "boycott risk premium" which has a substantial financial impact that is, however, not limited to the targeted firms. The boycott effect cannot readily be explained by litigation risk, a neglect effect, or liquidity considerations. The boycott factor is extremely useful in explaining cross-sectional differences in mean returns across industries. Valuation Insight: Luo and Balvers establish the existence of an investor boycott risk premium which implies that firms producing socially undesirable products are valued less in the market. This effect spills over to the valuation of firms with revenue streams that are merely positively correlated with those of boycotted firms.|
|Description:||63 p. ; Includes bibliographical references ([pp. 45-47]). ; "December 2014." ; The authors thank Andrew Carrothers, John Maheu, Clarence Kwan, Jiaping Qiu, Jimmy Ran, Kevin Veenstra and workshop participants at the Geneva Summit on Sustainable Finance, the EUROFIDAI 12th International Paris Finance Meeting, McMaster University, and Lingnan University for helpful comments.|
|Appears in Collections:||Michael Lee-Chin & Family Institute for Strategic Business Studies Working Paper Series|
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