Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212267 
Year of Publication: 
2013
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 27/2013
Publisher: 
Bank of Finland, Helsinki
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.
Subjects: 
political uncertainty
presidential election
institutional investor
investment
JEL: 
G23
G28
P16
Persistent Identifier of the first edition: 
ISBN: 
978-952-6699-48-6
Document Type: 
Working Paper

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