The impact of political uncertainty on institutional ownership

This paper provides original evidence from institutional investors that political uncertainty greatly affects investment behavior. Using institutional holdings of common stock, we find that institutions significantly reduce their holdings by 0.8–2.3% points during presidential election years. Such e...

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Bibliographic Details
Published in:Journal of financial stability 2021-12, Vol.57, p.100921, Article 100921
Main Authors: Francis, Bill B., Hasan, Iftekhar, Zhu, Yun
Format: Article
Language:English
Subjects:
Gubernatorial election
Institutional investor
Investment
Political uncertainty
Presidential election
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Summary:This paper provides original evidence from institutional investors that political uncertainty greatly affects investment behavior. Using institutional holdings of common stock, we find that institutions significantly reduce their holdings by 0.8–2.3% points during presidential election years. Such effect holds for gubernatorial elections with cross-state-border difference-in-difference analysis and for tests using a political uncertainty index. The effect is the opposite for American Depository Receipts (ADRs). In addition, we find that institutions benefit financially from the observed strategy, and such strategy is in line with predicted outcomes of presidential election polls.
ISSN:1572-3089
1878-0962
DOI:10.1016/j.jfs.2021.100921