Political Sentiment and Predictable Returns

• 成果类型: Article
• 署名作者: Addoum, Jawad M.; Kumar, Alok
• 署名单位: Cornell University; University of Miami
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhw066
• 发表日期: 2016
• 页码: 3471
• 关键词: cross-section; presidential-election; Investor sentiment; STOCK; RISK; cycles; performance; LIMITS

摘要

This study shows that shifts in political climate influence stock prices. As the party in power changes, there are systematic changes in the industry-level composition of investor portfolios, which weaken arbitrage forces and generate predictable patterns in industry returns. A trading strategy that attempts to exploit demand-based return predictability generates an annualized risk-adjusted performance of 6% during the 1939 to 2011 period. This evidence of predictability spans 17%-27% of the market and is stronger during periods of political transition. Our demand-based predictability pattern is distinct from cash flow-based predictability identified in the recent literature.