Sinners and Saints: An Alternative Approach to Evaluating the Investment Performance of Sin Funds Versus Sinless Funds

Abstract

We investigate the relative performance of sin versus sinless mutual funds by employing the propensity score matching (PSM) estimator and the bias-adjusted nearest-neighbor matching estimator (NNM) as alternatives to traditional matched-pair analysis. Sin funds generally outperform their sinless cohorts, and the return difference is related positively to the proportion of sin stocks in the portfolio. A notable exception occurs in the financial crisis period of 2007-2009, during which the opposite result holds.