Politics Driving Personal Economic Decisions Amid COVID-19

In a normal election year, politics are often driven by economics. But as COVID-19 spurred record job losses and stock market sell-offs, researchers noticed something curious: political persuasion was driving a wave of stock market optimism.

Tony Cookson, associate professor at CU Boulder’s Leeds School of Business, and Joey Engelberg and Will Mullins at the University of California San Diego’s Rady School of Management found Republican traders were more optimistic about a stock market rebound than non-Republicans. They detailed their findings in a new working paper.

Using keywords like #MAGA or #Trump2020, the researchers poured through more than 179 million posts on StockTwits, a social media website geared toward stock traders, for clear markers of conservativism. They found users who made frequent references to President Donald Trump or some of his favorite talking points tended to be more optimistic about a quick stock market rebound. The research also shows StockTwits posts correspond with actual trades in the market, indicating Republican optimism on the platform likely translates to more bullish trading.

“It really jumped out of the data,” Cookson said. “COVID-19 is a period of substantial uncertainty. One reaction is to seek new information, another is to default to a core identity that gives you comfort.”

For some traders, that comfort comes from looking to the commander in chief. 

“They believe the president. That’s not an unnatural way to guide your beliefs, believing the leader of your country,” Cookson said.

 The findings are important, according to Cookson, because they give insight into how people make decisions with their money in times of crisis.

Partisan differences were present before the pandemic

Engelberg noted that the split between Republican users and the rest began before COVID-19. “Our evidence suggests that it was actually the election of Donald Trump that first split off Republican users – who became more optimistic – from the rest of the user population,” Engelberg said.

However, instead of investors gradually converging on their views of the economy, as standard economic models would suggest, Engelberg noticed something different at play. “The divergence between Republican users and the rest only increased at key points in the U.S.-China Trade war, and became especially large during the COVID-19 period,” he said.

Some partisan pessimism

While Republican StockTwits users were optimistic about an overall stock market rebound, they also followed the president’s lead in souring on Chinese relations. 

“We found that Republicans became significantly more pessimistic about Chinese companies in March, as COVID-19 cases sharply increased in the U.S.,” Engelberg said. “But this was when the outbreak in China was subsiding, suggesting political rather than economic motives.”

“I thought it was pretty profound,” Cookson said. “Those differences between Republicans and non-Republicans seemed to have more nuance to it than a simple story would tell.”

An apolitical study

While the researchers were looking at Republicans’ decision-making compared to the rest of the market, Cookson said the study itself is not designed to make a political statement.

“We aren’t litigating who we think is right, we’re observing that they’re coming to different conclusions,” he said.

That’s important to explore, Cookson said, especially in a time where money is rapidly changing hands. The paper notes daily trades of stock shares rose about 36% from historical averages during COVID-19, a crisis rife with uncertain and changing information, leaving people to essentially trust their gut. The paper found 20% of the increase in turnover was due to political preferences.

“In times of uncertainty, we rely on our core identity to guide our decision-making,” Engelberg said. “And the evidence surrounding the COVID-19 pandemic suggests investors fell back on their core political identity to help them make process the uncertain world around them.”

 

 

 

Original post https://alertarticles.info

withyou android app