Quality of political information and return predictability: Evidence from investor sentiment and risk aversion

Jędrzej Białkowski and Xiaopeng Wei

Journal of Banking & Finance, 2025, vol. 177, issue C

Abstract: In this study, we examine how political information quality influences the predictive effects of investor sentiment and risk aversion on stock market returns. Our analysis reveals that low-quality information significantly diminishes the predictive power of investor sentiment while amplifying that of risk aversion. Moreover, incorporating a proxy for political information quality into predictive regression models significantly enhances their explanatory power. Overall, our results provide compelling evidence that the quality of information plays a critical role in shaping the dynamics of financial markets.

Keywords: Information quality; Investor sentiment; Risk aversion; Return predictability; Quality of political signals; Qindex (search for similar items in EconPapers)
JEL-codes: G11 G14 G18 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:177:y:2025:i:c:s0378426625000895

DOI: 10.1016/j.jbankfin.2025.107469

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