Can we insure against political uncertainty? Evidence from the U.S. stock market
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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- 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.
- Marco Celentani & J. Ignacio Conde-Ruiz & Klaus Desmet, . "Endogenous Policy Leads to Inefficient Risk Sharing," Working Papers 2003-08, FEDEA.
- Celentani, Marco & Conde-Ruiz, José Ignacio & Desmet, Klaus, 2003. "Endogenous Policy Leads to Inefficient Risk-Sharing," CEPR Discussion Papers 3866, C.E.P.R. Discussion Papers.
- Marco Celentani & J. Ignacio Conde & Klaus Desmet, 2002. "Endogenous policy leads to inefficient risk sharing," Economics Working Papers 593, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 2003.
- 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.
- E. Thompson, 1966. "A pareto optimal group decision process," Public Choice, Springer, vol. 1(1), pages 133-140, December.
- Raymond Fisman, 2001. "Estimating the Value of Political Connections," American Economic Review, American Economic Association, vol. 91(4), pages 1095-1102, September.
- 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.
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