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Are policy platforms capitalized into equity prices? Evidence from the Bush/Gore 2000 Presidential Election

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  • Knight, Brian

Abstract

This paper tests for the capitalization of policy platforms into equity prices using a sample of 70 firms favored under Bush or Gore platforms during the 2000 U.S. Presidential Election. Two sources of daily data during the six months leading up to the election are incorporated: firm-specific equity returns and the probability of a Bush victory as implied by prices from the Iowa electronic market. For this group of politically-sensitive firms, the daily baseline estimates demonstrate that platforms are capitalized into equity prices: under a Bush administration, relative to a counterfactual Gore administration, Bush-favored firms are worth 3 percent more and Gore-favored firms are worth 6 percent less, implying a statistically significant differential return of 9 percent. The most sensitive sectors include tobacco, worth 13 percent more under a favorable Bush administration, Microsoft competitors, worth 15 percent less under an unfavorable Bush administration, and alternative energy companies, worth 16 percent less under an unfavorable Bush administration. A corresponding analysis of campaign contributions, which allows for heterogeneity in the importance of policy platforms to the firms, supports the baseline estimates. These results are then compared with results from a more traditional event study based upon the Florida recount.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 90 (2006)
Issue (Month): 4-5 (May)
Pages: 751-773

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Handle: RePEc:eee:pubeco:v:90:y:2006:i:4-5:p:751-773

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Web page: http://www.elsevier.com/locate/inca/505578

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As found on the RePEc Biblio, the curated bibliography for Economics:
  1. > Political Economy > The Political Economy of the US
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Cited by:
  1. repec:cge:warwcg:59 is not listed on IDEAS
  2. Joachim Voth & Thomas Ferguson, 2008. "Betting on Hitler: The value of political connections in Nazi Germany," Economics Working Papers 1183, Department of Economics and Business, Universitat Pompeu Fabra.
  3. Justin Wolfers & Eric Zitzewitz, 2006. "Prediction Markets in Theory and Practice," NBER Working Papers 12083, National Bureau of Economic Research, Inc.
  4. Cheung, Yan-Leung & Rau, P. Raghavendra & Aris, Stouraitis, 2008. "The helping hand, the lazy hand, or the grabbing hand? Central vs. local government shareholders in publicly listed firms in China," CEI Working Paper Series 2008-11, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  5. Kim, Chansog (Francis) & Pantzalis, Christos & Chul Park, Jung, 2012. "Political geography and stock returns: The value and risk implications of proximity to political power," Journal of Financial Economics, Elsevier, vol. 106(1), pages 196-228.
  6. Snowberg, Erik & Wolfers, Justin & Zitzewitz, Eric, 2011. "How Prediction Markets Can Save Event Studies," CEPR Discussion Papers 8351, C.E.P.R. Discussion Papers.
  7. Masami Imai & Cameron A. Shelton, 2010. "Elections and Political Risk: New Evidence from Political Prediction Markets in Taiwan," Wesleyan Economics Working Papers 2010-001, Wesleyan University, Department of Economics.
  8. Arindrajit Dube & Ethan Kaplan & Suresh Naidu, 2011. "Coups, Corporations, and Classified Information," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1375-1409.
  9. Imai, Masami & Shelton, Cameron A., 2011. "Elections and political risk: New evidence from the 2008 Taiwanese Presidential Election," Journal of Public Economics, Elsevier, vol. 95(7), pages 837-849.
  10. John Goodell & Richard Bodey, 2012. "Price-earnings changes during US presidential election cycles: voter uncertainty and other determinants," Public Choice, Springer, vol. 150(3), pages 633-650, March.
  11. Goodell, John W. & Vähämaa, Sami, 2013. "US presidential elections and implied volatility: The role of political uncertainty," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 1108-1117.
  12. Mohamad Al-Ississ & Nolan H. Miller, 2010. "What Does Health Reform Mean for the Healthcare Industry? Evidence from the Massachusetts Special Senate Election," NBER Working Papers 16193, National Bureau of Economic Research, Inc.
  13. Camyar, Isa & Ulupinar, Bahar, 2013. "The partisan policy cycle and firm valuation," European Journal of Political Economy, Elsevier, vol. 30(C), pages 92-111.
  14. Jürgen Huber & Michael Kirchler, 2013. "Corporate campaign contributions and abnormal stock returns after presidential elections," Public Choice, Springer, vol. 156(1), pages 285-307, July.
  15. Juergen Huber & Michael Kirchler, 2008. "Corporate campaign contributions and abnormal stock returns after presidential elections," Working Papers 2008-18, Faculty of Economics and Statistics, University of Innsbruck.

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