Wanyi Wang

Abstract: Using two proxies for investors’ political affiliation, we document sharp differences in stock returns between firms likely dominated by Democratic investors (blue stocks) and those dominated by Republican investors (red stocks) during the COVID pandemic. Red stocks have 20 basis points higher risk-adjusted returns than blue stocks on COVID news days (Partisan Return Gap). Lockdown policies, COVID cases, industry and firm fundamentals only explain at most 40% of the return gap. Polarized political beliefs about COVID, revealed through people’s social distancing behaviors, contribute to about 40% of the return gap beyond the fundamental channel. Our paper provides partisanship as a novel aspect in understanding abnormal stock returns during the pandemic.

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 returns. Overall, these finding suggest that partisan funds react stronger to information consistent with their pre-existing beliefs.

Abstract: This paper examines how investors evaluate new technologies from the perspective of cryptocurrencies. Employing a machine learning method, we construct a novel Tech Index from whitepapers to capture technology sophistication of cryptocurrency. While cryptocurrencies with higher Tech Indexes are more likely to enjoy early success and a high first-day listing price, they tend to earn significantly lower subsequent returns after being listed. The return reversal is stronger when market sentiment is higher. Moreover, cryptocurrencies with higher Tech Index earn lower returns after the unexpected Luna Crash and FTX scandal. Overall, these findings suggest investors overreact to cryptocurrency technology.