We consider the pricing implications of screens imposed by Socially Responsible Investing
funds. The model extends standard risk-based asset pricing models by deriving as an additional
systematic risk factor a portfolio of stocks shunned by a subgroup of institutional investors. We
reconcile the empirically observed risk-adjusted sin-stock abnormal return with a “boycott risk
premium” which has a substantial financial impact that is, however, not limited to the targeted
firms. The boycott effect cannot readily be explained by litigation risk, a neglect effect, or
liquidity considerations. The boycott factor is extremely useful in explaining cross-sectional
differences in mean returns across industries.