Partisanship and Portfolio Choice: Evidence from Mutual Funds

86 Pages Posted: 6 Dec 2021 Last revised: 19 Jan 2024

See all articles by Will Cassidy

Will Cassidy

University of Chicago - Booth School of Business

Blair Vorsatz

University of Chicago - Booth School of Business

Date Written: January 18, 2024

Abstract

Political beliefs shape the portfolio choice of institutional investors. After Donald Trump’s surprise 2016 election, Republican fund managers actively increased their portfolio’s equity share by almost 2%, primarily by purchasing stocks sensitive to economic conditions. Partisan beliefs drive these changes – Republican stock analysts differentially increased their earnings forecasts concurrently. We demonstrate that Republican and Democratic-run funds now receive systematically different inflows due to a strong connection between manager partisanship and sustainability ratings. We build a Koijen-Yogo style model of partisan asset demand. Our framework imputes a large effect of partisanship on holdings, but a relatively small effect on prices themselves.

Keywords: Political Economy, Asset Pricing, Asset Demand, Beliefs

JEL Classification: G23, G11, G12

Suggested Citation

Cassidy, Will and Vorsatz, Blair, Partisanship and Portfolio Choice: Evidence from Mutual Funds (January 18, 2024). Available at SSRN: https://ssrn.com/abstract=3977887 or http://dx.doi.org/10.2139/ssrn.3977887

Will Cassidy (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S Woodlawn Ave
Chicago, IL 60637
United States

Blair Vorsatz

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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