Belief Disagreement and Portfolio Choice

Abstract

Using proprietary financial data on millions of households, we show that (likely) Republicans increased the equity share and market beta of their portfolios following the 2016 presidential election, while (likely) Democrats rebalanced into safe assets. We provide evidence that this behavior was driven by investors interpreting public information using different models of the world by using detailed controls to rule out the main non-belief-based channels like income hedging needs, preferences, and local economic exposures. These findings are driven by a small share of investors making big changes, and are stronger among investors who trade more ex ante.