Political Cognitive Biases Effects on Fund Managers' Performance

Abstract

Does political affiliation matter for stock-market investing? Rare events can produce polarized narratives that potentiate cognitive dissonance on a spectrum of agents. Using a comprehensive dataset of equity hedge funds' performance and managers' political affiliation matched by their partisan contributions, I document higher returns of funds managed by Democrats for ten subsequent months---from December 2008 to September 2009---when the interpretation of the US central bank policy was politically polarized and conducive to cognitive dissonance. This result is robust to a set of falsification tests and randomized quasi-experiments.

Keywords: Political Biases, Money Managers' Performance

JEL Classification: D72, G11, G14