The Moral Investor : Sin Stock Aversion and Virtue Stock Affinity

Does morality in business affect investors’ choice of stocks? Building on the source preference literature, we propose a novel measure of moral stock preference and offer a nested model relating it to social preference, attention to corporate social responsibility (CSR), and belief bias. We investigate moral stock preference experimentally in terms of sin stock aversion (SSA) and virtue stock affinity (VSA) and arrive at three main findings: (1) SSA and VSA are both observed, with the effect of SSA being stronger, (2) SSA/VSA is positively correlated with social preference, with the effect of altruistic giving being stronger than that of trust or trustworthiness, and (3) SSA/VSA is correlated with belief bias, the effect of which is stronger than that of social preference. The asymmetry between SSA and VSA – avoiding “bad” matters more than doing “good” – points to moral loss aversion based on a disproportionate avoidance of sin stocks compared to favoring virtue stocks. Together, our findings demonstrate the validity of our model, with social preference, attention to CSR, and belief bias working in tandem to capture the decision maker’s moral stock preference