Can Vice be Vindicated? Examining a potential value premium in vice stocks using Fama and MacBeth regressions - a comparison across three different factor models

Abstract

In this paper, we examine a 30-year period to find whether vice (defined as operations in the alcohol, tobacco, gambling, adult services, and weapons and defense industries) plays a role in determining returns of individual firms on the U.S. stock market. We find no evidence that vice can be expected to affect returns, but rather that expected effects from vice are priced by other factors. However, our analysis does not lead us to conclude that either of the examined risk factors explain the variability in our vice factor. Furthermore, we examine whether vice stocks are associated with a premium. We are not able to conclude that such a premium exists.