Do Politicians 'Put Their Money Where Their Mouth Is?' Ideology and Portfolio Choice

Abstract

To investigate how political tastes influence portfolio decisions, we exploit the mandatory disclosure of equity holdings made by U.S. Congress members and a continuous measure of ideology based on their voting records. By doing so, we address methodological issues facing the literature on political tastes and investment decisions. We find that politicians with similar beliefs hold similar equity portfolios and that more liberal members engage in more socially responsible investing, even within each party. Our results are driven by both liberals having a relative taste for firms with high social responsibility scores and by conservatives having a relative taste for firms with low scores. Ideology-based investments do not carry over to less salient mutual fund selections. We attempt to rule out other explanations, such as constituent ideology, window dressing, and home bias. We conclude that politicians’ equity investment decisions are consistent with their political beliefs.