The Influence of Political Bias in State Pension Funds
51 Pages Posted: 7 Oct 2015 Last revised: 3 Mar 2017
Date Written: July 28, 2015
Using a sample of state pension funds’ equity holdings, we find evidence of not only local bias, but also bias towards politically-connected stocks. Political bias is detrimental to fund performance. State pension funds have longer holding durations of politically-connected local firms and display disposition behavior in these positions. Political bias is positively related to the percentage of politically-affiliated trustees on the board and Congressional connections. The more politically-affiliated trustees on the board, the more the fund shifts toward risky asset allocations. Overall, our results imply that political bias is likely costly to taxpayers and pension beneficiaries.
Keywords: State pension funds, Political bias, Pension beneficiaries, Disposition effect
JEL Classification: G11, H55, H75
Suggested Citation: Suggested Citation