Belief Disagreement and Portfolio Choice

75 Pages Posted: 1 Oct 2018

See all articles by Maarten Meeuwis

Maarten Meeuwis

MIT Sloan School of Management

Jonathan A. Parker

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Duncan Simester

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: September 2018

Abstract

Using a proprietary dataset of the portfolio holdings of millions of anonymized households with trillions in wealth, we test the central tenet of rational-expectations theories of asset pricing and portfolio choice – that agents believe in a common model and update their beliefs identically in response to public signals – against alternative theories in which agents hold different models of the world and update beliefs heterogeneously. We identify households that ex ante are likely to believe in different models of the world using political party affiliation (probabilistically inferred from zip code), and our public signal is the unexpected outcome of the US election of November 2016. Relative to Democrats, Republican investors actively increase the share of equity and market beta of their portfolios following the election. Inconsistent with the effect being driven by differences in hedging needs with common beliefs, the results are robust to controls for age, wealth, income, state, and even county-employer fixed effects.

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Suggested Citation

Meeuwis, Maarten and Parker, Jonathan A. and Schoar, Antoinette and Simester, Duncan, Belief Disagreement and Portfolio Choice (September 2018). NBER Working Paper No. w25108. Available at SSRN: https://ssrn.com/abstract=3258206

Maarten Meeuwis (Contact Author)

MIT Sloan School of Management ( email )

100 Main Street
Cambridge, MA 02142
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Jonathan A. Parker

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
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617-253-7218 (Phone)

National Bureau of Economic Research (NBER)

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Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

50 Memorial Drive, E52-447
Cambridge, MA 02142
United States
617-253-3763 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duncan Simester

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Management Science
Cambridge, MA 02142
United States
617-258-0679 (Phone)
617-258-7597 (Fax)

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