Partisan Return Gap: The Polarized Stock Market in the Time of a Pandemic

56 Pages Posted: 25 Mar 2021 Last revised: 2 Jun 2021

See all articles by Jinfei Sheng

Jinfei Sheng

University of California, Irvine - Paul Merage School of Business

Zheng Sun

University of California, Irvine - Paul Merage School of Business

Wanyi Wang

University of California, Irvine - Paul Merage School of Business

Date Written: June 1, 2021

Abstract

We document sharp differences in stock price responses to COVID-19-related news between public firms headquartered in blue counties (dominated by Democratic voters) and those in red counties (dominated by Republican voters). Red-county stocks on average experience 18 basis points higher ab-normal returns than blue-county stocks on days with important COVID-19 news. We call this the Par-tisan Return Gap. We find the return gap can be explained by different risk attitudes towards COVID (measured by social distancing behavior) between red and blue counties. Overall, this paper shows that investors’ political leanings affect their attitudes toward COVID-19, resulting in politically polarized stock prices during the pandemic.

Keywords: Stock market, COVID-19, Partisanship, Return gap, Polarization, Social finance, Political finance

JEL Classification: G12, G18, G41

Suggested Citation

Sheng, Jinfei and Sun, Zheng and Wang, Wanyi, Partisan Return Gap: The Polarized Stock Market in the Time of a Pandemic (June 1, 2021). Available at SSRN: https://ssrn.com/abstract=3809575 or http://dx.doi.org/10.2139/ssrn.3809575

Jinfei Sheng (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

4291 Pereira Dr
Irvine, CA 92697
United States

HOME PAGE: http://sites.google.com/site/shengjinfei/

Zheng Sun

University of California, Irvine - Paul Merage School of Business ( email )

Paul Merage School of Business
Irvine, CA California 92697-3125
United States

Wanyi Wang

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA 92697-3125
United States

HOME PAGE: http://sites.google.com/view/wanyiwang

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