Political Uncertainty and Household Stock Market Participation

58 Pages Posted: 10 Nov 2017 Last revised: 25 Feb 2019

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

Georgia State University - J. Mack Robinson College of Business

Date Written: February 2019

Abstract

Using a unique micro-level panel data set, we study the effect of political uncertainty on household stock market participation. We find that households significantly reduce their participation and reallocate to safer assets during periods of increased political uncertainty preceding 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 drops in participation are only partially reversed, reflecting prolonged distortion in household stock investments. Such a distortion can have implications for households, firms, and the economy in general.

Keywords: Household Finance, Income Risk, Political Uncertainty, Portfolio Choice, Stock Market Participation

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 (February 2019). AFA 2019 Annual Meeting Paper; 2019 Academic Research Colloquium for Financial Planning and Related Disciplines; 29th Annual Conference on Financial Economics & Accounting 2018. 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

Georgia State University - J. Mack Robinson College of Business ( email )

P.O. Box 4050
Atlanta, GA 30303-3083
United States

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