Partisanship and Portfolio Choice: Evidence from Mutual Funds

Abstract

We study how political beliefs influence institutional investors' portfolio choices and asset prices, using a novel dataset linking fund manager partisanship to holdings. Following Donald Trump's surprise 2016 election, Republican-majority mutual fund teams sharply increased purchases of high beta stocks and raised equity exposure by approximately 2%, partly financed by elevated inflows. These reallocations affected asset prices: high-beta stocks more exposed to Republican mutual funds earned abnormal returns roughly 25 basis points higher per month. These returns are not explained by firm- or industry-specific news. Finally, Republican-majority fund Sharpe ratios declined, consistent with a deterioration in performance.

Keywords

Tags of Social Finance