Abstract: This paper examines the influence of partisanship on mutual fund information processing at the firm level. Through textual analysis of earnings call transcripts, I identify discussions on partisan-sensitive topics, such as climate change, pandemic, and healthcare. I find that Democratic-leaning funds exhibit stronger reactions to topics that the Democratic party is more negative about, and tend to sell more stocks after firms increase discussions on these topics compared to Republican funds. The effect is more pronounced for funds with greater political polarization and firms with larger weights in fund portfolios. Moreover, the observed overselling behavior by Democratic funds does not improve fund performance, indicating that the partisan effect is driven by non-financial considerations rather than rational expectations about future stock returns. Overall, these finding suggest that partisan funds react stronger to information consistent with their pre-existing beliefs.
Discussant: Rafael Zambrana, University of Notre Dame
Abstract: I show that pre-FOMC drift and FOMC announcement premium are realized only on the small subset of FOMC days preceded by key macro data releases. On the other two-thirds of all FOMC days, there is neither drift nor announcement premium. These equity returns are thus not unconditionally high around FOMC statements. Instead, they predominantly reflect reactions to new information, in particular to expectations regarding the path of monetary policy that are updated on key macro announcements. More broadly, financial market movements around FOMC statements strongly differ when key macro announcements immediately precede FOMC announcements. On this subset of FOMC days, conventional monetary policy shocks are predictable with past data, the Fed information effect can be observed, the secular decline in interest rates phenomenon around FOMC statements can be seen and the security market line slopes upwards. On all other FOMC days not preceded by macro news, the Fed information effect is absent, monetary policy shocks are not as predictable, there is no decline in interest rates around FOMC statements and the security market line is flat.
Juan M. Londono, Federal Reserve Board of Governors
Mehrdad Samadi, Federal Reserve Board of Governors
Annette Vissing-Jorgensen, Federal Reserve Board of Governors
Abstract: We develop a methodology to determine which days are "equity premium events": events with significantly elevated equity premia relative to the daily equity term structure. To do so, we use recently available daily S&P 500 option expirations and forward analogs of option-implied ex ante measures of the equity premium. We use a data-driven approach to identify events that are significantly priced without taking a stance on what those events are. A variety of individual events are associated with significantly elevated equity premia. Among macroeconomic releases, FOMC, CPI, and nonfarm payrolls have the largest abnormal equity premia, which increase substantially between June 2022 and June 2023.
However, the elevated equity premia on macroeconomic release days account for a significantly smaller share of total expected returns compared to previous estimates using realized excess returns, suggesting a role for unexpectedly good news. To provide intuition for the variation in equity premia across announcement types and time, we propose an asset pricing framework that decomposes the equity premium for a given macroeconomic release into components due to news variance and the sensitivities of the stock market and the SDF to the news released.
