Research Discussion Papers, Bank of Finland
No 27/2013:
The impact of political uncertainty on institutional ownership
Bill B. Francis ()
, Iftekhar Hasan ()
and Yun Zhu ()
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; (follow links to similar papers)
JEL-Codes: G23; G28; P16; (follow links to similar papers)
55 pages, November 21, 2013
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