Partisanship and Portfolio Choice: Evidence from Mutual Funds

47 Pages Posted: 6 Dec 2021

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: December 5, 2021

Abstract

Political beliefs matter for the behavior of institutional investors. Contrary to conventional wisdom, we show that whether a mutual fund team is Republican or Democratic has a first-order effect on the fund’s portfolio choice. Before and after the 2016 Presidential election, Republican teams actively purchase more equity, especially in high beta industries. Around the 2020 election, Democratic teams do the same. The flip in trading behavior rules out conventional risk aversion-based explanations for the role of partisanship. Instead, political beliefs appear to drive this trading, with managers appearing more optimistic when their political party wins the presidency. These effects are also present in 2012 but have grown over time.

Keywords: Political Economy, Asset Pricing

JEL Classification: G23, G11, G12

Suggested Citation

Cassidy, Will and Vorsatz, Blair, Partisanship and Portfolio Choice: Evidence from Mutual Funds (December 5, 2021). 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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