Obesity Related Stocks Risk and Return

In the last two decades there has been a significant increase in obesity in the United States of America. In this study, we examine the performance of firms directly related to the obesity trend; fast food restaurants such as McDonalds, soft drink companies such as the Coca-Cola company, and candy manufacturers such as the Hershey’s company. Particularly, we examine the risk-return profiles as well as the Buy-and-Hold Abnormal Returns (BHAR) of these stocks in relation to the economic cycle. We find that junk foods’ stocks have higher monthly returns and are riskier than the average stock. Additionally, junk foods’ stocks report positive abnormal returns, and this return is higher during economic recessions. However, we also find a decline in Sharpe ratios of junk foods’ stocks during recessions, indicating that Junk foods’ stocks offer lower risk-adjusted returns during recessions.