Abstract

http://ssrn.com/abstract=1509168
 
 

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Political Climate, Optimism, and Investment Decisions


Yosef Bonaparte


University of British Columbia (UBC)

Alok Kumar


University of Miami - School of Business Administration

Jeremy K. Page


Brigham Young University

February 26, 2012

AFA 2012 Chicago Meetings Paper

Abstract:     
We show that people's optimism towards financial markets and the macroeconomy is dynamically influenced by their political affiliation and the existing political climate. Individuals become more optimistic and perceive the markets to be less risky and more undervalued when their own party is in power. These shifts in perceptions of risk and reward affect investors' portfolio decisions. Specifically, when the political climate is aligned with their political identity, investors increase allocations to risky assets and exhibit a stronger preference for high market beta, small-cap, and value stocks. Due to these portfolio reallocations, investors improve their raw portfolio performance when their own party is in power, but the improvement in risk-adjusted performance is economically small.

Number of Pages in PDF File: 40

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Date posted: November 21, 2009 ; Last revised: April 20, 2012

Suggested Citation

Bonaparte, Yosef and Kumar, Alok and Page, Jeremy K., Political Climate, Optimism, and Investment Decisions (February 26, 2012). AFA 2012 Chicago Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1509168 or http://dx.doi.org/10.2139/ssrn.1509168

Contact Information

Yosef Bonaparte
University of British Columbia (UBC) ( email )
Kelowna, British Columbia
Canada
Alok Kumar (Contact Author)
University of Miami - School of Business Administration ( email )
514 Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)
HOME PAGE: http://moya.bus.miami.edu/~akumar
Jeremy K. Page
Brigham Young University ( email )
Marriott School of Management
685 TNRB
Provo, UT 84602
United States
801-422-7173 (Phone)
HOME PAGE: http://marriottschool.byu.edu/directory/details?id=19364
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