Belief Disagreement and Portfolio Choice

Using proprietary financial data on millions of households, we show that likely-Republicans increased the equity share and market beta of their portfolios following the 2016 presidential election, while likely-Democrats rebalanced into safe assets. We provide evidence that this behavior was driven by investors interpreting public information based on different models of the world. We use detailed controls to rule out the main nonbelief-based channels such as income hedging needs, preferences, and local economic exposures. These findings are driven by a small share of investors making big changes, and are stronger among investors who trade more ex ante.

Automated summary

Analyzing proprietary financial data on millions of households, it is found that likely-Republicans increased their equity share and market beta after the 2016 presidential election, while likely-Democrats rebalanced their portfolios with safe assets. This behavior is attributed to investors interpreting public information based on different models of the world.