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Can we insure against political uncertainty? Evidence from the U.S. stock market

  • Andrea Mattozzi

    ()

We show that existing stocks that are currently traded in the U.S. stock market can be used to hedge political uncertainty. Focusing on the 2000 U.S. Presidential election, we construct two "presidential portfolios" composed of selected stocks anticipated to fare differently under a Bush versus a Gore presidency. To construct these portfolios we use data on campaign contributions by publicly traded corporations and identify the major contributors on each side. Using daily observations for the six months before the election took place, we show that the excess returns of these portfolios with respect to overall market movements are significantly related to changes in electoral polls.

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File URL: http://hdl.handle.net/10.1007/s11127-008-9311-0
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Article provided by Springer in its journal Public Choice.

Volume (Year): 137 (2008)
Issue (Month): 1 (October)
Pages: 43-55

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Handle: RePEc:kap:pubcho:v:137:y:2008:i:1:p:43-55
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100332

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  1. Marco Celentani & J. Ignacio Conde-Ruiz & Klaus Desmet, 2004. "Endogenous Policy Leads to Inefficient Risk Sharing," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 758-787, July.
  2. Pantzalis, Christos & Stangeland, David A. & Turtle, Harry J., 2000. "Political elections and the resolution of uncertainty: The international evidence," Journal of Banking & Finance, Elsevier, vol. 24(10), pages 1575-1604, October.
  3. E. Thompson, 1966. "A pareto optimal group decision process," Public Choice, Springer, vol. 1(1), pages 133-140, December.
  4. Raymond Fisman, 2001. "Estimating the Value of Political Connections," American Economic Review, American Economic Association, vol. 91(4), pages 1095-1102, September.
  5. Pedro Santa-Clara & Rossen Valkanov, 2003. "The Presidential Puzzle: Political Cycles and the Stock Market," Journal of Finance, American Finance Association, vol. 58(5), pages 1841-1872, October.
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