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

Author

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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)

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.

Suggested Citation

  • Jinfei Sheng & Zheng Sun & Wanyi Wang, 2024. "Partisan Return Gap: The Polarized Stock Market in the Time of a Pandemic," Management Science, INFORMS, vol. 70(8), pages 5091-5114, August.
    • Handle: RePEc:inm:ormnsc:v:70:y:2024:i:8:p:5091-5114
    DOI: 10.1287/mnsc.2023.4913
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