Political climate, optimism, and investment decisions

Yosef Bonaparte, Alok Kumar, Jeremy K. Page

Research output: Contribution to journalArticle

5 Scopus citations

Abstract

We show that people's optimism towards financial markets and the macroeconomy is dynamically influenced by their political affiliation and the current political climate. Individuals become more optimistic and perceive markets to be less risky and more undervalued when their preferred party is in power. Accordingly, investors increase allocations to risky assets and exhibit a stronger preference for high market beta, small-cap, and value stocks, and a weaker preference for local stocks. The differences in optimism and portfolio choice across political regimes are not explained by shifts in economic conditions or differential response to economic conditions by Democrat and Republican investors.

Original languageEnglish (US)
Pages (from-to)69-94
Number of pages26
JournalJournal of Financial Markets
Volume34
DOIs
StatePublished - Jun 1 2017

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Keywords

  • Behavioral finance
  • Optimism
  • Politics
  • Portfolio choice
  • Sentiment

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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