Influence of Political Climate on Portfolio Composition: Evidence from Regional Banks

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In this paper we investigate the relation between regional heterogeneity in portfolio composition of German investors and the political climate at district level. We find that right-wing supporters are more likely to participate in financial markets and keep larger share of their wealth in securities portfolios. Consistent with the theory of political conservatism, in the regions with high support for right-wing parties individuals invest more in safe securities and less in risky assets. Together with political surprise and uncertainty, political climate has an impact on home bias of individual investors. The results support the idea that political values play a role in shaping financial decisions of households.

Author(s):

Marina Mukhamadieva    
Goethe University Frankfurt
Germany