Luo and Balvers (2015)

Luo, Arthur (Hao) and Ronald J. Balvers. “Social Screens and Systematic Boycott Risk.” Working paper (McMaster University), March 26, 2015.

From the authors’ abstract: “We consider the pricing implications of allowing the investor base to differ along a moral dimension. The model extends standard risk-based asset pricing models by deriving as an additional systematic risk factor a portfolio of stocks screened by a subgroup of institutional investors. The model reconciles the empirically observed risk-adjusted sin-stock abnormal return with a “boycott risk premium” derived from the model. We show that the boycott has a substantial financial impact that is, however, not limited to the targeted firms or industries. The model compares favorably to other theoretical asset pricing models based on the incremental contribution of the boycott factor to overall explanatory power. The boycott effect cannot readily be explained by litigation risk, a neglect effect, or liquidity considerations.”

Link: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2474255