Abstract

http://ssrn.com/abstract=2169360
 


 



Political Sentiment and Predictable Returns


Jawad M. Addoum


University of Miami - School of Business Administration

Alok Kumar


University of Miami - School of Business Administration

November 15, 2013


Abstract:     
This study shows that shifts in political climate influence asset prices. As the political climate changes, there are systematic shifts in the portfolio compositions of investors, which generate predictable patterns in industry returns. This evidence of demand-based predictability is distinct from cash-flow based predictability identified in the recent literature. A trading strategy that attempts to exploit demand-based return predictability generates an annualized risk-adjusted performance of six percent during the 1939 to 2011 period. Our evidence of predictability spans an economically meaningful segment of the market (17-27%) and is stronger during periods of higher investor attention and greater political awareness.

Number of Pages in PDF File: 58

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Date posted: November 2, 2012 ; Last revised: November 16, 2013

Suggested Citation

Addoum, Jawad M. and Kumar, Alok, Political Sentiment and Predictable Returns (November 15, 2013). Available at SSRN: http://ssrn.com/abstract=2169360 or http://dx.doi.org/10.2139/ssrn.2169360

Contact Information

Jawad M. Addoum (Contact Author)
University of Miami - School of Business Administration ( email )
P.O. Box 248126
Florida
Coral Gables, FL 33124
United States
Alok Kumar
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
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