Hedge Fund Politics and Portfolios
59 Pages Posted: 19 Dec 2014 Last revised: 6 Jun 2016
Date Written: June 5, 2016
Consistent with the well-documented relation between political orientation and psychological traits, hedge funds’ political orientations are related to their portfolio decisions. Relative to politically conservative hedge funds, politically liberal hedge funds exhibit a preference for smaller stocks, less mature companies, volatile stocks, unprofitable companies, non-dividend paying companies, and lottery-type securities. Politically liberal hedge funds are also more likely to enter new positions or fully exit existing positions, and make larger adjustments to their U.S. equity market exposure. Our results suggest that psychological characteristics can influence the portfolio decisions of even those at the very top of the financial sophistication ladder.
Keywords: Psychology; Political orientation; Hedge funds; Portfolio decisions
JEL Classification: G11, G23
Suggested Citation: Suggested Citation