The Mispricing of Socially Ambiguous Grey Stocks

It is not surprising to see that firms that have more socially responsible actions (“good” firms) are rewarded by a higher market return of 3% per calendar year compared to firms that do not engage in socially responsible or irresponsible actions (“neutral” firms). On the contrary, firms that are more socially irresponsible (“bad” firms) are not penalized by a negative return compared to “neutral” firms. A more important question remains: How does the market value those firms that engage in both socially responsible and irresponsible actions simultaneously? We term these socially ambiguous firms as “grey” firms.