Sin stocks a closer look: evidence on institutional ownership, analyst coverage and volatility

In this thesis I examine the relationship between sin stocks-publicly traded US companies involved in producing alcohol, tobacco and gaming -and institutional ownership, analyst coverage and return volatility. I present empirical evidence that sin stocks, both combined and by industry, are less held by institutional investors and receive less coverage by analysts than stocks with otherwise comparable characteristics. In line with the social norm hypothesis that there is a societal norm against funding the operations of sin stocks. Investigating institutional ownership over time reveals that the difference between sin stockownership is consistently lower over time with the difference between sin stocks and non-sin stocks increasing over time.This result does not hold for analyst coverage of sin stocks over time. Evidence on industry differences over time is more mixed. The volatilityanalysissuggeststhat sin stocks are more volatile than non-sin stocks. While Dividend paying sin stocks are on average less volatile and have a higher institutional ownership percentage than non-divided paying sin stocks. The results also indicate that the institutional ownershipeffecton volatility is smaller in sin stocks as compared to non-sin stocksirrespective of the dividend structure.Finding no support for the hypothesis that the sign of institutional ownership on volatility depends on whether the (sin) stock pays a dividend.