Partisan Return Comovement

Abstract

We show that the excess stock return comovement between firm pairs is positively associated with the political orientation similarity of their managers. This partisan-based return comovement can be attributed to style-based and habitat-based investing, as well as shared exposure to common information sources. Notably, partisan return comovement has increased significantly in recent years, coinciding with rising ideological polarisation and affective hostility between Republicans and Democrats. Overall, our results suggest that political polarisation in the United States is spilling over into the stock market, which is becoming increasingly segmented along party lines. Show more