A seminar by Dr Jinfei Sheng from the University of California, Irvine
Title: Partisan Return Gap: The Polarized Stock Market in the Time of a Pandemic
Abstract: We document sharp differences in stock price responses to COVID-19 related news between public firms headquartered in blue counties (dominated by Democratic supporters) and those in red counties (dominated by Republican supporters). Red-county stocks on average experience 17 basis points higher abnormal returns than blue-county stocks on days with important COVID-19 news. We call this “Partisan Return Gap”. The gap is consistent with our finding that investors in red counties are less concerned about COVID-19 and give a more favorable interpretation to COVID-19 related news. Using smartphone app data tracking people visits, we confirm that individuals in red counties conduct less social distancing behavior in response to the surge of COVID-19 cases and government lockdown orders. Moreover, we find that stocks in counties where investors conduct less social distancing behavior have higher returns on COVID-19 news days. There is limited evidence that the gap is driven by firms’ fundamentals or local economic conditions. Overall, this paper shows that investors’ partisanship affecting their attitude toward COVID-19, which leads to polarized stock prices in the time of the pandemic.
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