Using longitudinal U.S. household data, I document that Democrats are less likely than Republicans to participate in the stock market. More importantly, the partisan gap in stock market participation widens sharply under Democratic presidencies, precisely when the stock market returns are...

Stock markets play a dual role: help allocate capital by conveying information about firms' fundamentals and provide liquidity by quickly turning stocks into cash. We propose a trading model in which these two roles are endogenously related: more intensive use of stocks for liquidity affects...