Jun 2, 2026
It’s no surprise that how you vote influences how you invest.
But a new study has some surprising revelations when it comes to politically minded investors, including the finding that people who are more educated are actually more likely to make the mistake of letting politics cloud their investing decisions.
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If your political convictions are strongly held, it can make you even more likely to disregard the facts, the study authors say.
People trust their own political party more, regardless of the economy
Researchers say that it’s nothing new that Americans will view the country’s economic outlook differently based on whether their preferred political party is in power.
According to a 2025 report by Joanne Hsu, economist at the University of Michigan, which publishes the Index of Consumer Sentiment, “Partisan differences in consumer attitudes and expectations are well documented and date back to at least the Reagan administration.”
Hsu says that data “consistently showed that consumers affiliated with the political party in the White House tend to have higher levels of sentiment and more favorable expectations than those whose party is not.”
The most recent Index of Consumer Sentiment showed that for those who identify as Democrats, consumer sentiment sat at a very low 32.8, while Republicans came in at 84.6.
Conversely, in October 2024, before the election, when President Joe Biden was still in the White House, sentiment for Democrats sat at 91.4, and for Republicans it was 53.6.
Over the years, research has shown that investors change their behavior depending on whether their political party of choice controls the White House. A Journal of Financial Markets study from 2017 found that “When the political climate is aligned with their political identity, investors increase allocations to risky assets and exhibit a stronger preference for high market beta, small-cap, and value stocks.”
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New study finds political polarization clouds investors’ judgment
A new study, “Political Polarization and Stock Market Expectations,” by Marco Angrisani of the University of Southern California, Richard Sias and Austin Sobotka of the University of Arizona, and Harry J. Turtle of Colorado State University, looks at affective polarization, which is “the degree to which individuals hold favorable views of their own party and unfavorable views of the opposition party.”
According to an analysis of the study by Mark Hulbert published in Barron’s, the study hinges on the fact that its authors “rejected the notion that investors’ polarization results from honest and unbiased intellectual differences, since investors don’t change their economic expectations even when conditions objectively change.”
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Examples of those intellectual differences are that Republicans “may believe that markets perform better and are less risky under Republican presidencies because Republican tax policies encourage business growth,” the study says.
Democrats, meanwhile, “may believe that markets perform better and are less risky under Democratic presidencies because Democratic policies strengthen the middle class, increasing
wages and spending, which in turn supports stronger economic growth.”
While these differences underpinned previous thought on investors’ equity return beliefs, the study looks at “motivated beliefs [...] where one derives utility from having their beliefs align with their identity.”
The study says that if people’s identities become “intertwined with their political views, their
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equity return beliefs will be related to their affective polarization.”
Hulbert’s analysis of the study notes that this polarization can be seen in action in the instance of midterm elections where the party that holds the White House loses seats in Congress.
“Objectively, investors from [the party that lost seats] should react by becoming less optimistic about the economy and the stock market, since their preferred economic policies have become less likely to be implemented. But instead of reacting that way, these investors on average remain equally optimistic as before.”
A big surprise of this new study is that its authors say the relation between polarization and beliefs about equity returns “is stronger for more numerate (math-savvy), more financially literate, and more educated respondents.”
Hulbert says that this is because these people are more able to come up with a plausible story for why they should remain optimistic or pessimistic, even if conditions have changed.
So, if you think you belong to the smart-but-polarized category, what can you do about it?
Hulbert notes that while the study doesn’t offer any solution, one strategy could be to “[subject] your economic expectations to the scrutiny of investors of opposite political affiliations. A politically diverse investment club comes to mind.”
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Rebecca Payne has more than a decade of experience editing and producing both local and national daily newspapers. She's worked on the Toronto Star, the Globe and Mail, Metro, Canada's National Observer, the Virginian-Pilot and Daily Press.
