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Hedge Fund Politics and Portfolios

59 Pages Posted: 19 Dec 2014 Last revised: 6 Jun 2016

Luke DeVault

Clemson University - Department of Finance

Richard W. Sias

University of Arizona - Department of Finance

Date Written: June 5, 2016

Abstract

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

DeVault, Luke and Sias, Richard W., Hedge Fund Politics and Portfolios (June 5, 2016). Available at SSRN: https://ssrn.com/abstract=2539807 or http://dx.doi.org/10.2139/ssrn.2539807

Luke DeVault

Clemson University - Department of Finance ( email )

Clemson, SC 29634
United States

Richard W. Sias (Contact Author)

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

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