Why Democrats Can't Pick Stocks

by: Paul Kedrosky

The controversial financial research finding of the week (or maybe year) goes to a new-ish paper (Red and Blue Investing: Values and Finance) looking at the relationship between mutual fund and hedge fund manager performance, and political contributions.

The paper, by Harrison Hong and Leonard Kostovetsky, is more generally an attempt to untangle the relationship between U.S. manager postures toward socially responsible investing [SRI] and their party affiliation.

The most controversial finding, however, comes with respect to investing outperformance depending on political persuasion. The authors discover that the coefficient for Democratic fund managers is 0.061% compared to the 0.092% for Republicans, which amounts to a 36 basis points a year difference.

Okay, okay, that's admittedly not a huge performance difference -- in most real-world comparison it would get eaten up by cost differences -- but it's still sure to irritate some people.