Is It Good to Sin When Times Are Bad? An Investigation of the Defensive Nature of Sin Stocks

In this article, I use an EGARCH model to investigate whether a portfolio of sin stocks is less resistant to downside risk or losses during market downturns than is the S&P 500, a benchmark to approximate the market portfolio of risky stocks. In addition, I use the aforementioned model to analyze the defensive nature of individual sin industries (alcohol, tobacco, gambling, and defense) against the market portfolio. This article contributes to the existing literature on sin investing in two ways. First, my results illustrate the defensive nature of sin stocks and help reinforce the notion that sin stocks have some immunity from downside risk due to cyclical fluctuations and economic downturns. Second, I show results not only from a port-folio of sin stocks, but from various sin industries as well. The industry results highlight the defensive nature of sin stocks, an important component of their risk-adjusted returns.