Political uncertainty and institutional herding

Gavriilidis, Konstantinos; Kallinterakis, Vasileios; Montone, Maurizio

Abstract

Political uncertainty represents a key determinant of corporate investment decisions. In this paper, we study the relation between political uncertainty and investment from the perspective of institutional investors. Using U.S. equity holdings data from 13F filings, we find that institutional investors herd during politically uncertain times. This trading behavior is stronger when U.S. presidents are unpopular, due to their proclivity for controversial policies, and among riskier stocks. We also find that this mechanism, despite generating some excess trading, helps incorporate a risk premium into stock prices. Overall, the findings unveil a new channel through which political uncertainty affects financial markets.

Citation

Gavriilidis, K., Kallinterakis, V., & Montone, M. (2024). Political uncertainty and institutional herding. Journal of Corporate Finance, 88, Article 102627. https://doi.org/10.1016/j.jcorpfin.2024.102627

• Journal Article Type: Article
• Acceptance Date: Jul 9, 2024
• Online Publication Date: Jul 23, 2024
• Publication Date: 2024-10
• Deposit Date: Jul 10, 2024
• Publicly Available Date: Jul 25, 2024
• Journal: Journal of Corporate Finance
• Print ISSN: 0929-1199
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 88
• Article Number: 102627
• DOI: https://doi.org/10.1016/j.jcorpfin.2024.102627
• Public URL: https://durham-repository.worktribe.com/output/2522818