Do Hedge Fund Managers Understand Politics? Political Sensitivity and Investment Skill

Honghui Chen, Alok Kumar, Yan Lu and Ajai Singh

Journal of Banking & Finance, 2022, vol. 135, issue C

Abstract: We show that hedge fund managers who more actively and astutely adjust the political sensitivity of their portfolios, in line with the dynamic U.S. political landscape, improve their investment performance. Funds that tilt their portfolios toward market segments expected to perform better during the new political regime, specifically around U.S. Presidential elections, generate significantly higher alphas. Further, hedge fund families with greater responsiveness to political changes exhibit persistently superior performance and are more likely to survive. Hedge fund investors reward more responsive fund managers with greater inflows.

Keywords: Hedge funds; Political sensitivity; Presidential elections; Portfolio adjustments; Performance evaluation; Managerial skill (search for similar items in EconPapers)
JEL-codes: G11 G14 G23 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:135:y:2022:i:c:s0378426621003228

DOI: 10.1016/j.jbankfin.2021.106371

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