The Leibniz Institute SAFE organizes a brown bag seminar on
Political Divide and the Composition of Households’ Equity Portfolios
Prof. Stephan Siegel, PhD (Michael G. Foster Endowed Professor, University of Washington), co-authored with Yihui Pan, Elena S. Pikulina, and Tracy Yue Wang
Using stock holdings data for local investment advisers that cater to individual clients, we compare the portfolio composition between different counties across the U.S. and relate it to the political differences between these counties over the past 20 years. While political differences between counties have been increasing over the last 20 years, they seem to have little effect on differences in portfolio composition in the early part of our sample. However, since 2012 political differences exhibit a large and significant effect on differences in portfolio composition. Using the entry of a major conservative media network as a shock to county-level political views, we show that at least some of this effect likely represents a causal impact of political distance on portfolio distance. Finally, we show that the effect of political division on differences in households’ equity portfolio choices operates through diverging political views on social and environmental issues rather than through differences in economic expectations. Our study suggests that increasing political divisions could lead to diverging household portfolios across the U.S. as investors increasingly align their financial investment with their politically shaped values.