Republicans and Democrats, your political leanings color your investments

How to immunize your stock-market choices from political bias.

16.2.2020

OPINION: You're just as biased in your portfolios as you are in the voting booth.

How to immunize your stock-market choices from political bias.

The investment consequences of political bias are particularly evident in how willing we are to incur risk in the stock market. One way researchers have documented this is what we do to our portfolios in the wake of a change in the political affiliation of the presidency. If your preferred candidate wins, chances are good that you will believe the economy’s prospects have improved and risk has lessened, and as a consequence you will increase your equity exposure.

This pattern has become even stronger in recent years, according to Yosef Bonaparte, one of the study’s co-authors. Bonaparte is a finance professor at the University of Colorado Denver and program director of the J.P Morgan Center for Commodities. In yet-unpublished research, he told me in an interview, he found that Republicans exhibited a dramatic 26% increase in risk tolerance after President Trump was elected. Democrats, in contrast, experienced a 10% decline.

For example, the professors found, hedge-fund managers who favor Democrats are more inclined to invest in smaller companies and those that don’t pay dividends than Republican-leaing managers.Mark Hulbert Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com



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