US partisan polarization and households' portfolio decisions

Abstract

This paper uses a panel survey (micro-level) dataset to explore the impact of US partisan polarization on households' portfolio decisions. The results document that households significantly reduce their market investments in risky assets due to stronger partisan polarization conditions. The findings survive certain robustness checks, while they clearly illustrate the rising effect of political uncertainty on such decisions. Such results could carry substantial implications since they suggest that partisan polarization uncertainty acts as a negative externality in this type of portfolio choice decisions.