Belief Disagreement and Portfolio Choice

Abstract

Using proprietary portfolio data on millions of households, we show that (likely) Republicans increase the equity share and market beta of their portfolios following the 2016 presidential election, while (likely) Democrats rebalance into safe assets. We provide evidence that this behavior is driven by investors interpreting public information using different models of the world, by ruling out the main non-belief-based channels (like income hedging needs, preferences, local economic exposure) using detailed controls for ex ante wealth and investments, demographics and income, and even county-employer-period fixed effects. These findings are driven by a small share of investors making big changes in allocation, and are stronger among investors who are more attentive to their portfolios or who do not delegate their investment decisions.

FinTech Adoption and Household Risk-Taking: From Digital Payments to Platform Investments

“…Alternatively, a growing literature links survey-based investor beliefs and risk preferences to portfolio choices (Giglio et al (2021), Jiang, Peng, and Yan (2021)). Household portfolio choice is also related to personal experiences and attitudes, such as past investment, macroeconomic experiences, and political affiliation (e.g., Choi et al (2009), Malmendier andNagel (2011), andMeeuwis, Parker, Schoar, andSimester (2018)). Our work contributes to this literature by providing a measure of risk tolerance based on the theoretical framework in Merton (1971) and connecting it with portfolio choice.…”

“…See alsoMeeuwis, Parker, Schoar, and Simester (2018) andGiglio et al (2021) on the connection between individual risk-taking and variations in preferences and beliefs.…”

Leveraging the Disagreement on Climate Change: Theory and Evidence

“…more than 40% of Americans live in coastal shoreline counties subject to SLR inundation risk. 6 In a related paper outside of the climate context, Meeuwis et al (2021) exploit a large proprietary household financial data set to evaluate the implications of the belief disagreement between (likely) Republicans and (likely) Democrats for equity investment decisions after the 2016 presidential election. Due to a data limitation similar to ours, the authors cannot observe households' equity belief or political affiliation.…”

Partisan Fertility and Presidential Elections

“…A few papers report a relationship between partisanship and spending on consumer goods (Benhabib and Spiegel, 2019, Gerber and Huber, 2009, Gillitzer and Prasad, 2018, but others have challenged this link (McGrath, 2017, Mian et al, 2021. Further, a group of papers have linked partisanship with financial outcomes, such as tax evasion, stock market trading, corporate credit, and retirement investing (Cookson et al, 2020, Cullen et al, 2021, Dagostino et al, 2020, Kempf and Tsoutsoura, 2020, Meeuwis et al, 2021 Across many nations, growing political polarization and declining fertility are two fundamental challenges facing society. We estimate e↵ects at the intersection of these two forces.…”