Political Cognitive Biases Effects on Fund Managers' Performance

32 Pages Posted: 20 Jul 2016

See all articles by Marian W. Moszoro

Marian W. Moszoro

George Mason University - Department of Economics; George Mason University - Interdisciplinary Center for Economic Science (ICES); Warsaw School of Economics (SGH)

Michael Bykhovsky

Center for Open Economics

Multiple version iconThere are 3 versions of this paper

Date Written: July 17, 2016

Abstract

Under rational agent hypothesis, financial industry practitioners should not be affected by political discourse, and investors cannot realize abnormal returns on publicly available information. Rare events, however, may silence rationality and potentiate cognitive dissonance on a spectrum of agents. We assembled a comprehensive dataset of hedge fund performance and matched equity hedge fund managers’ political affiliation by their partisan contributions. We document higher returns of equity hedge funds managed by Democrats for 10 subsequent months — from December 2008 to September 2009. This result is unique and robust to placebo time windows and random partisan affiliation shuffling. We conjecture that the conjunction of the financial crisis, Obama’s election, and politically polarized interpretation of the US central bank policy during that period had an asymmetric impact on hedge fund managers’ perception. In other periods, when the political discourse did not involve central bank policy, there was no statistically significant difference between the performance of equity hedge fund managers depending on their political beliefs.

Keywords: Prospect Theory, Political Biases, Market Efficiency, Money Managers Performance

JEL Classification: D72, G11, G14

Suggested Citation

Moszoro, Marian W. and Bykhovsky, Michael, Political Cognitive Biases Effects on Fund Managers' Performance (July 17, 2016). Available at SSRN: https://ssrn.com/abstract=2810888 or http://dx.doi.org/10.2139/ssrn.2810888

Marian W. Moszoro (Contact Author)

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

HOME PAGE: http://economics.gmu.edu/people/mmoszoro

George Mason University - Interdisciplinary Center for Economic Science (ICES) ( email )

400P Truland Building
George Mason University
Fairfax, VA 22030
United States

Warsaw School of Economics (SGH) ( email )

aleja Niepodleglosci 162
PL-Warsaw, 02-554
Poland

Michael Bykhovsky

Center for Open Economics ( email )

San Francisco, CA
United States

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