Political Cognitive Biases Effects on Fund Managers' Performance

33 Pages Posted: 13 Jan 2018

See all articles by Marian W. Moszoro

Marian W. Moszoro

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

Michael Bykhovsky

Center for Open Economics

Multiple version iconThere are 3 versions of this paper

Date Written: January 10, 2018

Abstract

Who does a better job of managing money: Republicans or Democrats? 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 produce polarized narratives that go viral and potentiate cognitive dissonance on a spectrum of agents. We assembled a comprehensive dataset of equity hedge funds performance and matched the managers' political affiliation by their partisan contributions. We document higher returns of funds managed by Democrats for ten subsequent months --- from December 2008 to September 2009. This result is unique and robust to a set of randomized quasi-experiments. 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 in fund managers’ performance depending on their political beliefs.

Keywords: Political Biases; Money Managers' Performance

JEL Classification: D72, G11, G14

Suggested Citation

Moszoro, Marian W. and Bykhovsky, Michael, Political Cognitive Biases Effects on Fund Managers' Performance (January 10, 2018). Available at SSRN: https://ssrn.com/abstract=3101356 or http://dx.doi.org/10.2139/ssrn.3101356

Marian W. Moszoro (Contact Author)

Warsaw School of Economics (SGH) ( email )

aleja Niepodleglosci 162
PL-Warsaw, 02-554
Poland

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
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George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
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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

Michael Bykhovsky

Center for Open Economics ( email )

San Francisco, CA
United States

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