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Underreaction to political information and price momentum
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Addoum, Jawad M., Delikouras, Stefanos, Ke, Da and Kumar, Alok (2019) Underreaction to political information and price momentum. Financial Management , 48 (3). pp. 773-804. doi:10.1111/fima.12241 ISSN 0046-3892.
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Official URL: http://doi.org/10.1111/fima.12241
Abstract
In this study, we examine whether momentum in stock prices is induced by changes in the political environment. We find that momentum profits are concentrated among politically sensitive firms and industries. From 1939 to 2016, a trading strategy with a long position in winner portfolios (industries or firms) that are politically unfavored and a short position in losers that are politically favored does not generate significant momentum profits. Furthermore, our political‐sensitivity‐based long‐short portfolio explains 23% to 27% (42% to 43%) of monthly stock (industry) momentum alphas. This explanatory power is concentrated around presidential elections, when the level of political activity is high. Collectively, our results suggest that investor underreaction to political information generates momentum in stock and industry returns.
Item Type: | Journal Article | ||||||||
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Divisions: | Faculty of Social Sciences > Warwick Business School | ||||||||
Journal or Publication Title: | Financial Management | ||||||||
Publisher: | Wiley-Blackwell Publishing, Inc. | ||||||||
ISSN: | 0046-3892 | ||||||||
Official Date: | September 2019 | ||||||||
Dates: |
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Volume: | 48 | ||||||||
Number: | 3 | ||||||||
Page Range: | pp. 773-804 | ||||||||
DOI: | 10.1111/fima.12241 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Restricted or Subscription Access |
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