Do Hedge Fund Managers Understand Politics? Political Sensitivity and Investment Skill

68 Pages Posted: 8 Nov 2016 Last revised: 6 Aug 2020

See all articles by Honghui Chen

Honghui Chen

Department of Finance, University of Central Florida

Alok Kumar

University of Miami - Miami Herbert Business School

Yan Lu

University of Central Florida - College of Business Administration

Ajai K. Singh

Department of Finance, University of Central Florida

Date Written: July 6, 2020

Abstract

We show that hedge fund managers who better understand the dynamic U.S. political landscape actively adjust the political sensitivity of their portfolios and improve their investment performance. Specifically, around U.S. Presidential elections, funds that tilt their portfolios toward market segments expected to perform better during the new political regime generate significantly higher alphas. Further, hedge fund families with greater responsiveness to political changes exhibit persistently superior performance and are more likely to survive. Hedge fund investors reward more responsive fund managers with greater inflows.

Keywords: Hedge funds, political sensitivity, Presidential elections, portfolio adjustments, performance evaluation, managerial skill.

JEL Classification: G11, G14, G23

Suggested Citation

Chen, Honghui and Kumar, Alok and Lu, Yan and Singh, Ajai K., Do Hedge Fund Managers Understand Politics? Political Sensitivity and Investment Skill (July 6, 2020). University of Miami Business School Research Paper No. 2865206, Available at SSRN: https://ssrn.com/abstract=2865206 or http://dx.doi.org/10.2139/ssrn.2865206

Honghui Chen

Department of Finance, University of Central Florida ( email )

PO Box 161400
Orlando, FL 32816
United States
407-823-0895 (Phone)

Alok Kumar (Contact Author)

University of Miami - Miami Herbert Business School ( email )

514 Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)

HOME PAGE: http://moya.bus.miami.edu/~akumar

Yan Lu

University of Central Florida - College of Business Administration ( email )

PO Box 161400
Orlando, FL 32816
United States

Ajai K. Singh

Department of Finance, University of Central Florida ( email )

College of Business Administration
12744 Pegasus Drive
Orlando, FL 32816
United States
407-823-0761 (Phone)
407-823-6676 (Fax)

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