Misperception of political connection and speculation

Time: 27th February 2019

Location: B401, meeting room, Newhuadu Business School

Guest: Xi’en Jin (Doctor Guanghua Management college, Perking University)

Abstract: This paper examines that misperception on political connection could be a source of heterogeneous belief and lead to speculative investor behavior. In Korea, stock price of firms who are believed to have a certain type of connection with presidential candidates (PCFs) experience a strong boom and bust pattern during the six months pre-election period. However, we find that the perceived connections cannot add values to outside shareholders or to the firms. We provide evidences that consistent with the joint effect of heterogeneous beliefs and short-sale constraints. Moreover, we find that speculations on PCFs are more pronounced by individual investors and this lead to substantial trading losses.