Time to bet against gold?
This study suggesting that investors are more bullish when their party is in power and more bearish when the other party is in power has been making the rounds, and I'd hate for you to miss it.
This paper shows that people's optimism towards financial markets and the overall economy is dynamically influenced by their political affiliation and the existing political climate. Republicans (Democrats) are more optimistic and they perceive the markets to be less risky and more undervalued when the Republican (Democratic) party is in power. These optimism shifts are more pronounced among individuals with lower financial sophistication. Further, when the opposite party is in power, investors lower their forecasts of market returns, keep own portfolio return forecasts unchanged and, therefore, appear more overconfident. These shifts in optimism, overconfidence, and perceptions of risk and reward influence people's investment decisions. Specifically, investors with a pessimistic view of the domestic economy exhibit strong propensity to invest in foreign stocks and in the domestic setting, they gravitate toward less risky, familiar local stocks and trade more actively. Investors improve their raw portfolio performance when their own party is in power, but the improvement in risk-adjusted performance is economically small.
More on the study here and here. The observed effect is fairly small. Or at least it was. Presumably, the fact that clownish -- but influential -- voices in the opposition are starting to exhort their viewers to buy gold probably isn't helping matters. It does suggest, however, that more rational investors could make a bit of pocket money betting against the positions most likely to be irrationally inflated by partisan investors.
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