Political Divide and the Composition of Households’ Equity Portfolios

Résumé

We examine the stock holdings of wealthy households across U.S. counties with different political preferences over the past 25 years. Although political differences between counties have been increasing since at least 1996, it is not until 2013 that they significantly and increasingly contribute to differences in equity portfolio composition. Using the entry of a major conservative media network as a shock to county-level political preferences, we find evidence for a causal effect of political differences. We show that the effect of political differences on portfolio differences operates mainly through diverging political views on social and environmental issues rather than differences in macroeconomic expectations or expected regulatory risk of specific stocks or industries. Our study suggests that political polarization has segmented U.S. equity markets by political lines and – given the partisan segregation – geographical lines.

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Codes JEL