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Presidential Election Uncertainty And Common Stock Returns In The United States

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  • Jinliang Li
  • Jeffery A. Born

Abstract

There is substantial evidence on the influence of political outcomes on the business cycle and stock market. We further hypothesize that uncertainty about the outcome of a U.S. presidential election should be reflected in pre-election common stock returns. Prior research pools returns based on the party of the winning candidate, assuming that the outcome of the election is known a priori. We use candidate preference (i.e., polling) data to construct a measure of election uncertainty. We find that if the election does not have a candidate with a dominant lead, stock market volatility (risk) and average returns rise. 2006 The Southern Finance Association and the Southwestern Finance Association.

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Bibliographic Info

Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

Volume (Year): 29 (2006)
Issue (Month): 4 ()
Pages: 609-622

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Handle: RePEc:bla:jfnres:v:29:y:2006:i:4:p:609-622

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Cited by:
  1. Bryan T. Kelly & Lubos Pastor & Pietro Veronesi, 2014. "The Price of Political Uncertainty: Theory and Evidence from the Option Market," Working Papers, Becker Friedman Institute for Research In Economics 2014-001, Becker Friedman Institute for Research In Economics.
  2. Lubos Pastor & Pietro Veronesi, 2011. "Political Uncertainty and Risk Premia," Working Papers, Becker Friedman Institute for Research In Economics 2011-007, Becker Friedman Institute for Research In Economics.
  3. Lau, Chi Keung Marco & Demir, Ender & Bilgin, Mehmet Huseyin, 2013. "Experience-based corporate corruption and stock market volatility: Evidence from emerging markets," Emerging Markets Review, Elsevier, Elsevier, vol. 17(C), pages 1-13.
  4. Ray Sturm, 2013. "Economic policy and the presidential election cycle in stock returns," Journal of Economics and Finance, Springer, Springer, vol. 37(2), pages 200-215, April.
  5. Goodell, John W. & Vähämaa, Sami, 2013. "US presidential elections and implied volatility: The role of political uncertainty," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(3), pages 1108-1117.

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