Shifts in Political Environment and Industry Momentum: Evidence from Global Stock Markets

Other Titles
Abstract

This paper aims to examine whether shifts in the political environment can explain industry momentum profits in global stock markets. In the U.S., Canada and Australia, I find that the politically consistent momentum strategy, which takes a long position in industries that are both winners and politically favored and a short position in industries that are both losers and politically unfavored, outperforms the standard momentum strategy. In contrast, the politically inconsistent momentum strategy, which has a long position in industries that are winners but politically unfavored and a short position in industries that are losers but politically favored does not generate significant profits. Further, I find that a political-sensitivity-based long-short portfolio explains approximately 20% to 40% of industry momentum profits in the three countries. This explanatory power is concentrated around presidential (prime minister) elections. Overall, the results support the theory that investor underreaction to political information generates momentum. In other countries in which the pattern cannot explain momentum returns, I attempt to provide a new conjecture.

Journal / Series
Volume & Issue
Description
55 pages
Sponsorship
Date Issued
2022-05
Publisher
Keywords
behavioral finance; industry momentum; momentum profits; party change; political climate
Location
Effective Date
Expiration Date
Sector
Employer
Union
Union Local
NAICS
Number of Workers
Committee Chair
Addoum, Jawad M.
Committee Co-Chair
Committee Member
Murfin, Justin
Degree Discipline
Applied Economics and Management
Degree Name
M.S., Applied Economics and Management
Degree Level
Master of Science
Related Version
Related DOI
Related To
Related Part
Based on Related Item
Has Other Format(s)
Part of Related Item
Related To
Related Publication(s)
Link(s) to Related Publication(s)
References
Link(s) to Reference(s)
Previously Published As
Government Document
ISBN
ISMN
ISSN
Other Identifiers
Rights
Rights URI
Types
dissertation or thesis
Accessibility Feature
Accessibility Hazard
Accessibility Summary
Link(s) to Catalog Record