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Partisan Bias in Fund Portfolios

Published online by Cambridge University Press:  16 May 2019

M. Babajide Wintoki  and
Yaoyi Xi
M. Babajide Wintoki*
Affiliation:
Wintoki, [email protected], University of Kansas School of Business
Yaoyi Xi
Affiliation:
Xi, [email protected], San Diego State University Fowler College of Business
*
Wintoki (corresponding author), [email protected]
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Abstract

We document that fund managers are more likely to allocate assets to firms managed by executives and directors with whom they share a similar political partisan affiliation. We find that this bias is not associated with improved fund performance. Funds with more partisan bias suffer from higher levels of idiosyncratic volatility than those with less bias. Partisan bias is more evident when fund managers are less experienced, in more informationally opaque firms, and when the U.S. president comes from fund managers’ own party. These findings suggest that political partisan bias among fund managers may be due to in-group favoritism.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 55 , Issue 5 , August 2020 , pp. 1717 - 1754
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2019

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Footnotes

We thank Christopher Anderson, Brad Barber, George Bittlingmayer, Travis Box, Daniel Bradley and Noah Stoffman (the referees), Gjergji Cici, Jennifer Conrad (the editor), Bob DeYoung, Suzanna Emelio, Jiekun Huang, Ted Juhl, April Knill, Paul Koch, Lei Li, Felix Meschke, Jenny Olson, Robert Stambaugh, Avanidhar Subrahmanyam, Kevin Tseng, Joakim Westerholm, and seminar participants at the 2017 Financial Management Association Annual Meeting, the 2018 Midwestern Finance Association Annual Meeting, Saint John’s University, the University of Kansas, and the U.S. Securities and Exchange Commission for helpful comments and suggestions on earlier drafts.

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