Belief Disagreement and Portfolio Choice

63 Pages Posted: 1 Oct 2018

See all articles by Maarten Meeuwis

Maarten Meeuwis

Washington University in St. Louis - John M. Olin Business School

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 US households, we document how agents who believe in different models of the world update their beliefs heterogeneously in response to a public signal. We identify households ex ante that hold 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 national election of 2016. Relative to Democrats, Republican investors actively increase the equity share and market beta of their portfolios following the election. The rebalancing is due to a small share of investors making large adjustments. We conclude that this behavior is driven by belief heterogeneity because of extensive controls for differential hedging needs or preferences, including detailed controls for age, wealth, income, state, and even county-employer fixed effects.

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)

Washington University in St. Louis - John M. Olin Business School ( email )

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Jonathan A. Parker

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

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National Bureau of Economic Research (NBER)

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Antoinette Schoar

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

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617-253-3763 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER) ( email )

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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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