Abstract
We study whether and how political investing influences the performance of mutual funds. We provide robust evidence of the positive relation between mutual funds' political connection intensity exposure and future performance. The gross return gap between the top and bottom quintiles of mutual funds ranked by exposure to political connection intensity reaches 4.38% on an annualized basis. The performance gap is larger and more significant for mutual funds with high characteristic-selectivity skills. Our findings show that political connection intensity exposure is more closely related to stock selection skill than to political investing risk premium, political investing timing ability or corruption.
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