The impact of political uncertainty on institutional ownership

Bill B. Francis, Iftekhar Hasan and Zhu Yun

No 27/2013, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: This paper provides original evidence from institutional investors that political uncertainty during presidential elections greatly affects investment. Using U.S. institutional ownership data from 1981 to 2010, we find that institutions significantly reduce their holdings of common stock by 0.76 to 2.1 percentage points during election years. More specifically, institutions tend to sell large proportions of their positions when Republicans win presidential elections and then keep their positions at below-average levels through the first year of the new administration. Conversely, when Democrats win presidential elections, institutions tend to keep their positions at above-average levels for the first year of the new administration. The difference in ownership rises to 2.4% by the end of the first year of new administration. Changes in institutional ownership in election years are sensitive to the uncertainty of the outcome. Our results also show that institutions benefit from these holding strategies during the pre-election periods.

Keywords: political uncertainty; presidential election; institutional investor; investment (search for similar items in EconPapers)
JEL-codes: G23 G28 P16 (search for similar items in EconPapers)
Date: 2013
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Journal Article: The impact of political uncertainty on institutional ownership (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:rdp2013_027

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