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

May 13, 2015


Abstract:     
This study shows that shifts in political climate influence stock prices. As the party in power changes, there are systematic changes in the industry-level composition of investor portfolios, which weaken arbitrage forces and generate predictable patterns in industry returns. 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. This evidence of predictability spans 17-27% of the market and is stronger during periods of greater political awareness. Our demand-based predictability pattern is distinct from cash-flow based predictability identified in the recent literature.

Number of Pages in PDF File: 69


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Date posted: November 2, 2012 ; Last revised: May 14, 2015

Suggested Citation

Addoum, Jawad M. and Kumar, Alok, Political Sentiment and Predictable Returns (May 13, 2015). 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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