Partisanship in Mutual Fund Portfolios
43 Pages Posted: 1 Sep 2021 Last revised: 17 Mar 2022
Date Written: February 5, 2021
Partisan bias in fund portfolios is the effect of fund manager’s political affiliation on portfolio allocation decisions. I study two potential manifestations of this bias: biased expectations where managers become optimistic (pessimistic) when their party comes in (goes out of) the government, and in-group favoritism where managers choose higher holdings of politically aligned firms. I find strong evidence for the biased expectations channel, using recent data that includes the effects of the 2020 Presidential election. However, contrary to past literature, I find no evidence for in-group favoritism. I also document a partisan bias in holdings of stocks exposed to politicized topics (COVID-19 and Brexit). The COVID-19 result does not carry over to earlier pandemics (H1N1, Ebola and Zika).
Keywords: Partisan Bias, Portfolio Choice, Expectations, COVID-19
JEL Classification: D84, G11, G14, G41
Suggested Citation: Suggested Citation