Do gun companies benefit in the wake of mass shootings, such as the one last week in Uvalde, TX? The answer is a qualified “yes” – but it is a little more complicated than it might seem at first. Answering the question of a company (or industry as a whole) “benefitting” depends on several factors, such as the timeframe analyzed, how highly-publicized the shooting is, the number of companies considered, and whether one is asking about profits (sales) or stock prices (share price). For highly-publicized shootings like the one in Uvalde, sales of guns and ammunition typically rise sharply – the prevailing theory is that gun enthusiasts rush to buy more guns out of fears that they will soon be banned. The share price question is more complicated, because if investors held the same views as the gun purchasers, they would not buy or might even sell shares in gun companies – if they thought strict new regulations were on the horizon, despite a surge in short-term profits from the sales immediately after the event. Ironically, if share prices go up, it suggests that investors have the opposite beliefs of the gun buyers – they must expect no significant increase in legal restrictions on guns, so they see the mass shooting as an event that simply generates more sales.
On May 25, the NYT reported that major gun companies saw a jump in their share prices the day after the Uvalde massacre (other news outlets have similar reports – see here and here), and The Street reported a similar phenomenon after the mass shooting in Buffalo a week or so before. Gun company share prices rallied after the 2017 Las Vegas massacre, according to several major news outlets (see here, here, here and here). Currently, there are two publicly traded gun manufacturers – Sturm Ruger and Smith & Wesson (see here and here); at least two publicly-traded ammunition makers, Vista Outdoors (which owns Remington Ammunition) and Olin; and some major publicly-traded retailers, like Wal-Mart, Dick’s, Sportsman’s Warehouse, and Big Five Sporting Goods (see here). Many institutional investors – such as index funds or pension funds – have holdings in some of these companies, a point to which I return below.
Academic researchers are more likely to study trends and patterns over time, rather than the next-day market response major news outlets typically report; a next-day bump might be only temporary. When researchers look at long-term effects, the picture becomes more complex. A 2020 article in the Southern Economic Journal found that firearm sales increased nationwide (this article has a nice breakdown by region and characteristics of shooters and victims). Another paper making similar findings in 2016 is here. Similarly, a 2019 Cornell University thesis submitted for a Master’s Degree in Applied Economics and Management found that mass shootings cause a modest two-step bump (several days apart) in gun company share prices.
On the other hand, a 2019 academic article by James Karan found that some mass shootings hurt stock returns of some gun companies. And researchers Geoffrey Steeves and Newton da Costa, Jr. wrote in 2017 that when they aggregated events and companies’ returns, there was a modest negative impact on share price. Steeves and da Costa note, however, “Our results suggest that shareholder response in the form of abnormal returns depends on the magnitude of the mass shooting and whether these events are analyzed individually or aggregated.”
Still other researchers think that there is no long-term effect either way. A heavily-cited 2017 article by Anand Gopal and Brad Greenwood found that up to 2010, mass shootings hurt gun company stock prices, but that this effect disappeared after that (they speculate investors decided this was the “new normal”); the authors reiterated their findings in an op-ed this week). Two additional studies found no measurable effect of mass shootings on gun companies’ share prices (see also here and here).
After reviewing these academic papers, it seems that the answer to the question depends whether you are studying an individual massacre and specific companies, or if you aggregate data – and then it is going to depend on your date parameters (how far back in time do you look, and how close to the present moment can you come with reliable data?), how many companies you study, and how many “mass shootings” the researcher includes in the study.
Regardless of what other investors are doing or what trends occur in the market, some investors may want to divest from gun companies, either in hopes they can hurt the firearms industry, or to avoid feeling complicit in the violence that results from the prevalence of firearms. Personal divestment is a little tricky for those who invest in mutual funds and pension funds. Sites like Weapons Free Guns and Gun Free Funds help investors assess their investment exposure to gun manufacturers and sellers. According to recent reports, the institutional investor with the largest share holdings in publicly-traded firearms manufacturers is BlackRock. Sustainable Investing explains here why it may not be possible for investors in index funds to avoid investing in the gun industry.