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The impact of political uncertainty on institutional ownership

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  • Francis, Bill B.
  • Hasan, Iftekhar
  • Zhu, Yun

Abstract

This paper provides original evidence from institutional investors that political uncertainty greatly affects investment behavior. Using institutional holdings of common stock, we find that institutions significantly reduce their holdings by 0.8–2.3% points during presidential election years. Such effect holds for gubernatorial elections with cross-state-border difference-in-difference analysis and for tests using a political uncertainty index. The effect is the opposite for American Depository Receipts (ADRs). In addition, we find that institutions benefit financially from the observed strategy, and such strategy is in line with predicted outcomes of presidential election polls.

Suggested Citation

  • Francis, Bill B. & Hasan, Iftekhar & Zhu, Yun, 2021. "The impact of political uncertainty on institutional ownership," Journal of Financial Stability, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:finsta:v:57:y:2021:i:c:s1572308921000802
    DOI: 10.1016/j.jfs.2021.100921
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    More about this item

    Keywords

    Political uncertainty; Presidential election; Gubernatorial election; Institutional investor; Investment;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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