Do different cultural values affect the excess return of sin stocks?


  • Michelle Amory



sin stocks, excess return, hofstede, power distance index, individualism collectivism, masculine feminine, uncertainty avoidance index, long term short term normative orientation, indulgence restraint, firm valuation, behavioral finance


Several studies have demonstrated that sin stocks have different characteristics in comparison with other stocks. However, previous research that examines sin stocks has generally assumed that countries are similar in their stance towards sin stocks or that other nations are similar to the US and have some degree of disapproval of sin stocks. This study introduces a new model and shows that sin stocks are treated differently between countries depending on its culture and religion. The question that is answered throughout this study is: “What is the relationship between different cultural values of countries as measured by Hofstede and the excess return of sin stocks?” When regressing the excess returns against the dimensions of Hofstede, the dimensions masculinity versus femininity and indulgence versus restraint have negative coefficients that are significant at a 5% level. This implies that when nations are considered more masculine they are more likely to invest in sin stocks. On the contrary, their feminine counterparts are more likely to refrain from investing in sin stocks. When a country scores high on indulgence it is more likely to invest in sin stocks, whereas countries that score high on restraint are more likely to refrain from investing in sin stocks. The results are similar when using the three-factor model; consequently the interpretation of the results remains the same. When controlling for religion, only masculinity versus femininity remains significant. The model seems robust; it can handle variability and remain effective. 


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