Left Behind: Partisan Identity, Stock Market Participation, and Wealth Inequality

58 Pages Posted: 4 Jun 2019 Last revised: 1 May 2024

See all articles by Da Ke

Da Ke

University of South Carolina - Department of Finance

Date Written: May 29, 2022

Abstract

This paper investigates whether and how opposing partisans differ in their wealth accumulation. Using microdata from a longitudinal U.S. household survey, I document that Democrats are on average 11% less likely than Republicans to participate in the stock market. Moreover, the partisan gap widens sharply, by 13%, under Democratic presidencies, precisely when the stock market returns are substantially higher. This dynamic pattern accounts for more than half of the discrepancy in wealth accumulation between Democrats and Republicans over presidential cycles. A decomposition exercise uncovers two underlying forces in opposite directions: while the partisan gap in stock market participation through directly held investment accounts narrows during Democratic presidencies, the narrowing gap is dominated by the widening partisan gap in stock market participation through retirement accounts during the same periods. I further provide speculative evidence that the widening gap is related to job changes, and in particular, entrepreneurship entry.

Keywords: partisan identity, wealth inequality, political cycles, stock market participation

JEL Classification: D31, G40, G51

Suggested Citation

Ke, Da, Left Behind: Partisan Identity, Stock Market Participation, and Wealth Inequality (May 29, 2022). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3384406 or http://dx.doi.org/10.2139/ssrn.3384406

Da Ke (Contact Author)

University of South Carolina - Department of Finance ( email )

1014 Greene Street
Columbia, SC 29208
United States

HOME PAGE: http://www.dakefinance.com

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