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Conservation, Discrimination, and Salvation: Investors’ Social Concerns in the Stock Market

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Abstract

Stocks appear to have investor clienteles based on their business practices and products. The variety in expressive benefits each individual receives from owning controversial stocks causes them to modify their portfolio to accommodate their beliefs. We examine the ownership of firms with social concerns and sin stocks (tobacco, alcohol and gambling). Women tilt their portfolios towards stocks with progressive labor policies for women and minorities. Younger investors avoid companies with poor environmental records but seek companies with progressive labor policies. Democratic voters favor stocks with progressive policies regarding women/minorities and gays/lesbians and are less likely to own sin stocks. Christian objections to homosexuality lead their members to invest less in stocks with progressive labor policies for gays and lesbians. The Christian denominations vary, though, in regard to sin stocks. Catholics are more likely while Mormons are less likely to own a sin stock relative to other investors. Socially responsible investors are clearly not all alike. Social characteristics that are important to one investor may not be important to another socially conscious investor.

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Notes

  1. See www.electionstudies.org.

  2. The Progressive Democrats of America (PDA) defines itself as a grassroots Political Action Committee operating inside the Democratic Party (www.pdamerica.org).

  3. KLD has now been acquired RiskMetrics Inc., a popular provider of corporate governance data

  4. We use the household’s end-of-month portfolio holdings, but often refer to this using the term individual investor.

  5. See www.uselectionatlas.org.

  6. The strong showings for third party candidates during these elections necessitate some awareness. In 1992 Ross Perot obtained 18.9 % of the vote and in 1996 he obtained 8.4 %. Since Ross Perot’s appeal was evenly split between Democrats and Republicans (Lewis et al. 1994) his votes are split evenly between Democrats and Republicans. However, votes for Ralph Nader and the Green Party are considered Democratic votes. In the 2000 Presidential Election, Ralph Nader received 2.7 % of the votes, and while there is much disagreement on the effect he had on the race, there is little doubt that he drew many more votes from Democrats than Republicans.

  7. See www.thearda.com. We use the 2000 data set instead of the 1990 data set because the data provided for many of the counties in Virginia was improved.

  8. The determinations of Mainline and Evangelical Protestant denominations are those of ARDA.

  9. The data is unbalanced because KLD’s coverage is limited to S&P 500 stocks and some investors did not hold any S&P 500 stocks during our sample period and others did not even have an open account for some months of the sample period.

  10. We thank the reviewer for suggesting these measures.

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Authors and Affiliations

  1. College of Business, Texas State University, San Marcos, TX, 78666, USA

    Matthew Hood

  2. College of Business, Washington State University, Pullman, WA, 99164-4746, USA

    John R. Nofsinger

  3. College of Business, Illinois State University, Normal, IL, 61790-5480, USA

    Abhishek Varma

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  1. Matthew Hood
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  2. John R. Nofsinger
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  3. Abhishek Varma
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Correspondence to Matthew Hood.

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A premilinary version of this article was entitled “Sin Stocks and the Religious Investor.”

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Hood, M., Nofsinger, J.R. & Varma, A. Conservation, Discrimination, and Salvation: Investors’ Social Concerns in the Stock Market. J Financ Serv Res 45, 5–37 (2014). https://doi.org/10.1007/s10693-013-0162-6

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  • DOI: https://doi.org/10.1007/s10693-013-0162-6

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