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Political orientation and compensation for idiosyncratic risk

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  • Lee, Seunghyup

Abstract

This paper presents evidence that idiosyncratic risk is better compensated when the population’s political balance is more liberal. Firm-level analysis indicates higher demand for idiosyncratic risk, lower demand for market risk, and more active stock-level arbitrage activities among conservative investors.

Suggested Citation

  • Lee, Seunghyup, 2022. "Political orientation and compensation for idiosyncratic risk," Economics Letters, Elsevier, vol. 218(C).
    • Handle: RePEc:eee:ecolet:v:218:y:2022:i:c:s0165176522002385
    DOI: 10.1016/j.econlet.2022.110699
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    More about this item

    Keywords

    Idiosyncratic risk; Return predictability; Political orientation; Risk preference;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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