Partisan Return Gap: The Polarized Stock Market in the Time of a Pandemic

Jinfei Sheng (), Zheng Sun () and Wanyi Wang ()
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Jinfei Sheng: Merage School of Business, University of California, Irvine, Irvine, California 92617
Zheng Sun: Merage School of Business, University of California, Irvine, Irvine, California 92617
Wanyi Wang: Merage School of Business, University of California, Irvine, Irvine, California 92617

Management Science, 2024, vol. 70, issue 8, 5091-5114

Abstract: Using two proxies for investors’ political affiliation, we document sharp differences in stock returns between firms likely dominated by Democratic investors (blue stocks) and those dominated by Republican investors (red stocks) during the COVID pandemic. Red stocks have 20 basis points higher risk-adjusted returns than blue stocks on COVID news days ( Partisan Return Gap ). Lockdown policies, COVID cases, industry and firm fundamentals only explain at most 40% of the return gap. Polarized political beliefs about COVID, revealed through people’s social distancing behavior, contribute to about 40% of the return gap beyond the fundamental channel. Our paper provides partisanship as a novel aspect in understanding abnormal stock returns during the pandemic.

Keywords: partisanship; stock returns; pandemic; COVID-19; political polarization; political finance; social finance (search for similar items in EconPapers)
Date: 2024
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