President Donald Trump while campaigning in 2016 (Photo: AP)
How do people's beliefs affect their trading behavior? In a working paper presented by the National Bureau of Economic Research, researchers looked at the 2016 presidential election to find out.
They found that Republicans and Democratic investors responded to President Donald Trump's widely unexpected election in different ways.
Households that were likely Republican increased their share of equity investments, and as a result increased their beta with the stock market, after the election. Likely Democratic voters pulled money out of the stock market and invested it in bonds and safe securities.
Active trading over the six months following the election, not differences in returns, drove the results, according to the paper, and the relative change in equity shares was more than twice as large among previously active traders — in line with prior research that a large fraction of households show sticky portfolio allocations in their retirement savings.
Researchers found a significant increase in trading volume in their dataset following the election, regardless of political affiliation.
The sample was created from using cutoffs from the 2016 Survey of Consumer Finance.
