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We consider a model in which shareholders provide a risk-averse CEO with risktaking incentives in addition to effort incentives. We show that the optimal contract protects the CEO from losses for bad outcomes and is convex for medium outcomes and concave for good outcomes. We calibrate the model to data on 1,707 CEOs and show that it explains observed contracts much better than the standard model without risk-taking incentives. When we apply the model to contracts that consist of base salary, stock, and options, the results suggest that options should be issued in the money. Our model also helps us rationalize the universal use of at-the-money options when the tax code is taken into account. Moreover, we propose a new way of measuring risk-taking incentives in which the expected value added to the firm is traded off against the additional risk a CEO has to bear. JEL classification: G30, M52

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This article studies sin stocks on the European market over the period 2006-2020. In addition to stocks in alcohol, tobacco, gambling, and defense sectors that are traditionally considered sin stocks, we analyze stocks in carbon-intensive sectors that have newly evolved as sin stocks, such as oil and gas, metals and mining, uranium, and coal. To investigate the return performance of sin stocks, we run time-series regressions with factor models and Fama-MacBeth cross-sectional regressions. Our results suggest that there is no robust sin premium for new sin stocks or traditional sin stocks, either in comparison with the market or their peer stocks. Our analysis on ownership characteristics shows that investors in sin stocks are mainly investment managers, corporations, and individuals. While new sin stocks are popular among institutional investors, traditional sin stocks are less held by norm-constrained investors. Finally, our subsample analyses indicate some potential changes in the market perception of the new sin stocks after the Paris Agreement.

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