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Social Screens and Systematic Investor Boycott Risk

Published online by Cambridge University Press:  09 February 2017

H. Arthur Luo  and
Ronald J. Balvers
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Abstract

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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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 52 , Issue 1 , February 2017 , pp. 365 - 399
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2017 

Footnotes

1 The authors are grateful for valuable comments provided by Hendrik Bessembinder (the editor), Andrew Carrothers, Michael Cooper (the referee), Clarence Kwan, Hugues Langlois, John Maheu, Jiaping Qiu, Jimmy Ran, Olivier Scaillet, Adam Stivers, Kevin Veenstra, and workshop participants at the Geneva Summit on Sustainable Finance, the 2014 Eurofidai International Paris Finance Meeting, McMaster University, and Lingnan University. Balvers thanks the Michael Lee-Chin & Family Institute for Strategic Business Studies for research support. The views expressed in this paper are those of the authors alone and do not necessarily reflect those of the Office of the Comptroller of the Currency or the U.S. Department of the Treasury.

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