Professional investors often assume they are free of political bias. However, research suggests this is far from true. Political bias is proven to cost investors who may over- or under-estimate the state of the economy depending on whether their preferred party is in power.

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In a Nasdaq article published in June, the investor Martin Tiller observed how many left-leaning investors dumped stocks after Donald Trump’s victory in 2016, as did right-leaning investors after Barack Obama’s victory in 2008, both motivated by notions that the wrong party had won the election and the economy would pay a price. Yet, the S&P 500 consistently grew in the months following each president’s inauguration, duping the investors who let their bias get in the way.

Academic research suggests this is a widespread phenomenon. A 2017 study in the Journal of Financial Markets highlighted how individuals’ investment behaviors shifted when their preferred........

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