Political sentiment and predictable returns

Addoum, Jawad M. and Kumar, Alok 2016, Political sentiment and predictable returns, Review of financial studies, vol. 29, no. 12, pp. 3471-3518, doi: 10.1093/rfs/hhw066.

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Title Political sentiment and predictable returns
Author(s) Addoum, Jawad M.
Kumar, Alok
Journal name Review of financial studies
Volume number 29
Issue number 12
Start page 3471
End page 3518
Total pages 48
Publisher Oxford University Press
Place of publication Oxford, Eng.
Publication date 2016-12
ISSN 0893-9454
Summary 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.
Language eng
DOI 10.1093/rfs/hhw066
Indigenous content off
Field of Research 1402 Applied Economics
1502 Banking, Finance and Investment
1401 Economic Theory
HERDC Research category C1.1 Refereed article in a scholarly journal
Persistent URL http://hdl.handle.net/10536/DRO/DU:30133484

Document type: Journal Article
Collections: Faculty of Business and Law
Department of Finance
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