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Does the U.S. president affect the stock market?

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  • Montone, Maurizio

Abstract

Previous research shows that Democrat- and Republican-leaning investors hold different stock market expectations. In this paper, I identify a novel channel through which political opinions affect investor behavior. Instead of political affiliation, I consider nonpartisan evaluations of the executive from presidential approval rating polls. I find that large net disapproval over the U.S. president’s job is followed by low stock returns, especially in times of high political uncertainty and low market-wide sentiment. Notably, this mechanism explains away Santa-Clara and Valkanov’s (2003) “presidential puzzle.” Overall, the findings suggest that nonpartisan political views have a substantial impact on stock prices.

Suggested Citation

  • Montone, Maurizio, 2022. "Does the U.S. president affect the stock market?," Journal of Financial Markets, Elsevier, vol. 61(C).
  • Handle: RePEc:eee:finmar:v:61:y:2022:i:c:s1386418121000768
    DOI: 10.1016/j.finmar.2021.100704
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    1. Das, Kuntal K. & Yaghoubi, Mona, 2023. "Stock liquidity and firm-level political risk," Finance Research Letters, Elsevier, vol. 51(C).

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    More about this item

    Keywords

    Politics; Approval ratings; Heterogeneous beliefs; Return predictability;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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