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

Management Science, Forthcoming

59 Pages Posted: 25 Mar 2021 Last revised: 7 Sep 2023

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: March 21, 2023

Abstract

Using two proxies for investors’ political affiliation, we document sharp differences in stock returns between firms likely dominated by Democratic investors (blue stocks) and those dominated by Republican investors (red stocks) during the COVID pandemic. Red stocks have 20 basis points higher risk-adjusted returns than blue stocks on COVID news days (Partisan Return Gap). Lockdown policies, COVID cases, industry and firm fundamentals only explain at most 40% of the return gap. Polarized political beliefs about COVID, revealed through people’s social distancing behaviors, contribute to about 40% of the return gap beyond the fundamental channel. Our paper provides partisanship as a novel aspect in understanding abnormal stock returns during the pandemic.

Keywords: Partisanship, Stock returns, Pandemic, COVID-19, Political polarization, Political finance, Social 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 (March 21, 2023). Management Science, Forthcoming, 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 Drive
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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