The Influence of Political Bias in State Pension Funds

51 Pages Posted: 7 Oct 2015 Last revised: 3 Mar 2017

See all articles by Daniel Bradley

Daniel Bradley

University of South Florida

Christos Pantzalis

University of South Florida

Xiaojing Yuan

University of Massachusetts Lowell - Department of Finance

Date Written: July 28, 2015

Abstract

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

Bradley, Daniel and Pantzalis, Christos and Yuan, Xiaojing, The Influence of Political Bias in State Pension Funds (July 28, 2015). Journal of Financial Economics (JFE), Volume 119, Issue 1, Pages 69–91. Available at SSRN: https://ssrn.com/abstract=2636996

Daniel Bradley (Contact Author)

University of South Florida ( email )

Tampa, FL 33620
United States

Christos Pantzalis

University of South Florida ( email )

Tampa, FL 33620-5500
United States
(813) 974-3262 (Phone)

Xiaojing Yuan

University of Massachusetts Lowell - Department of Finance ( email )

Lowell, MA 01854
United States

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