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

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.

Name thesis:degree_name

M.S., Applied Economics and Management

Level thesis:degree_level

Master of Science

Discipline thesis:degree_discipline

Applied Economics and Management

Grantor

Cornell University

Year dc:date.issued

2022

Author dc:creator

• Wang, Zhongyang

Committee member dc:contributor.committeemember

• Murfin, Justin

• behavioral finance
• industry momentum
• momentum profits
• party change
• political climate

Language dc:language.iso

en

DOI

https://doi.org/10.7298/87zh-4j54

Dc Identifier Other

ProQuest Submission ID: 11470
ProQuest Publication ID: 29168431

OAI identifier oai:identifier

oai:ecommons.cornell.edu:1813/111657