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Abstract
This article examines the return characteristics of a portfolio of U.S. “vice stocks”—firms that manufacture and sell socially irresponsible products such as alcohol, tobacco, gaming services, and national defense. The author constructs a portfolio comprising the daily returns of 41 vice stocks from May 1995–May 2015 and computes the riskadjusted returns by using the Carhart four-factor model and Sortino ratio. Full-period results show a positive and significant alpha for the entire portfolio and positive, yet insignificant, alphas for each vice industry. Down market results show a negative, yet insignificant, alpha for the entire portfolio. Bull market results show a significant alpha for the entire portfolio, as well for the alcohol and defenseindustry securities.
TOPICS: Security analysis and valuation, factor-based models, equity portfolio management
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