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Does Political Risk Affect the Efficiency of the Exchange-Traded Fund Market?—Entropy-Based Analysis Before and After the 2025 U.S. Presidential Inauguration

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  • Joanna Olbryś

    (Faculty of Computer Science, Bialystok University of Technology, Wiejska 45a, 15-351 Białystok, Poland)

Abstract

The aim of this research is to thoroughly investigate the influence of the 2025 Donald Trump Presidential Inauguration on informational efficiency of the U.S. exchange-traded fund market in the context of political risk. The data set includes daily observations for twenty U.S. Exchange-Traded Funds (ETFs). The whole sample comprises the period from 20 October 2024 to 20 April 2025. Since the Presidential Inauguration of Donald Trump took place on 20 January 2025, two sub-samples of an equal length are analyzed: (1) the period before the 2025 U.S. Presidential Inauguration from 20 October 2024 to 19 January 2025 and (2) the period after the 2025 U.S. Presidential Inauguration from 20 January 2025 to 20 April 2025. Since the whole sample period is not long (six months), to estimate market efficiency, modified Shannon entropy based on symbolic encoding with two thresholds is used. The empirical findings are visualized by symbol-sequence histograms. The proposed research hypothesis states that the U.S. ETF market’s informational efficiency, as measured by entropy, substantially decreased during the turbulent period after the Donald Trump Presidential Inauguration compared to the period before the Inauguration. The results unambiguously confirm the research hypothesis and indicate that political risk could affect the informational efficiency of markets. To the best of the author’s knowledge, this is the first study exploring the influence of the Donald Trump Presidential Inauguration on the informational efficiency of the U.S. ETF market.

Suggested Citation

  • Joanna Olbryś, 2025. "Does Political Risk Affect the Efficiency of the Exchange-Traded Fund Market?—Entropy-Based Analysis Before and After the 2025 U.S. Presidential Inauguration," Risks, MDPI, vol. 13(7), pages 1-18, June.
    • Handle: RePEc:gam:jrisks:v:13:y:2025:i:7:p:121-:d:1688515
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