Political Uncertainty and Household Stock Market Participation

49 Pages Posted: 10 Nov 2017 Last revised: 20 Apr 2021

See all articles by Vikas Agarwal

Vikas Agarwal

Georgia State University; University of Cologne - Centre for Financial Research (CFR)

Hadiye Aslan

Georgia State University - Department of Finance

Lixin Huang

Georgia State University

Honglin Ren

Renmin University of China - School of Business

Date Written: June 4, 2020

Abstract

Using micro-level panel data and a difference-in-differences identification strategy, we study the effect of political uncertainty on household stock market participation. We find that households significantly reduce their participation and reallocate funds to safer assets during periods of increased political uncertainty prior to gubernatorial elections. The decline in participation is related to households’ response to elevated asset risk and their incentive to hedge increased labor income risk. In situations where uncertainty remains high after elections, pre-election reduction in participation is only partially reversed.

Keywords: Political uncertainty, Stock market participation, Portfolio choice, Labor income risk, Asset risk

JEL Classification: D14, G11, G18

Suggested Citation

Agarwal, Vikas and Aslan, Hadiye and Huang, Lixin and Ren, Honglin, Political Uncertainty and Household Stock Market Participation (June 4, 2020). Journal of Financial and Quantitative Analysis--forthcoming, AFA 2019 Annual Meeting Paper, 29th Annual Conference on Financial Economics & Accounting 2018, 2019 Academic Research Colloquium for Financial Planning and Related Disciplines, Available at SSRN: https://ssrn.com/abstract=3068792 or http://dx.doi.org/10.2139/ssrn.3068792

Vikas Agarwal

Georgia State University ( email )

35 Broad Street,
Suite 1221
Atlanta, GA 30303-3083
United States
404-413-7326 (Phone)
404-413-7312 (Fax)

HOME PAGE: http://www.gsu.edu/~fncvaa

University of Cologne - Centre for Financial Research (CFR)

Albertus-Magnus Platz
Cologne, 50923
Germany

Hadiye Aslan (Contact Author)

Georgia State University - Department of Finance ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

Lixin Huang

Georgia State University ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

Honglin Ren

Renmin University of China - School of Business ( email )

Beijing
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
539
Abstract Views
2,717
rank
63,331
PlumX Metrics