This paper tests the hypothesis that preference in social performance may affect investors’ trading decision, leading to price underreaction to mispricing signals and stock return predictability. We find most underpriced stocks with poor social performance have highest risk adjusted returns, while most overpriced stocks with good social performance have lowest risk adjusted returns. The results are mainly driven by the stocks more held by socially responsible (SR) institutional investors and not due to limits to arbitrage. It suggests SR investors are reluctant to buy underpriced stocks with poor social performance or sell overpriced stocks with good social performance. Such inefficiency is not fully offset by unconstrained investors.