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Prediction Markets, the True Value of the Revolving Door and the US Cabinet

Author

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  • Benjamin Koch
  • Simon Luechinger
  • Christoph Moser

Abstract

We estimate the value of the revolving door for firm executives and directors joining the cabinets of the Trump I and Biden administrations. By combining intraday stock and prediction market data, we take the degree of anticipation of political appointments into account and we offer estimates for the true value of the revolving door. Following nominations, stock prices and expected appointment probabilities rise strongly for nominees and drop modestly for runners up. Although largely anticipated, prediction markets still move significantly on nomination announcements. For positive jumps in prediction markets, we also find large positive stock price reactions.

Suggested Citation

  • Benjamin Koch & Simon Luechinger & Christoph Moser, 2024. "Prediction Markets, the True Value of the Revolving Door and the US Cabinet," CESifo Working Paper Series 11557, CESifo.
    • Handle: RePEc:ces:ceswps:_11557
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    References listed on IDEAS

    as
    1. Luechinger, Simon & Moser, Christoph, 2014. "The value of the revolving door: Political appointees and the stock market," Journal of Public Economics, Elsevier, vol. 119(C), pages 93-107.
    2. Erik Snowberg & Justin Wolfers & Eric Zitzewitz, 2007. "Partisan Impacts on the Economy: Evidence from Prediction Markets and Close Elections," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 807-829.
    3. Brown, Jeffrey R. & Huang, Jiekun, 2020. "All the president's friends: Political access and firm value," Journal of Financial Economics, Elsevier, vol. 138(2), pages 415-431.
    4. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
    5. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
    6. Eitan Goldman & Jörg Rocholl & Jongil So, 2009. "Do Politically Connected Boards Affect Firm Value?," The Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2331-2360, June.
    7. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
    8. Fink, Alexander & Stahl, Jörg R., 2020. "The value of international political connections: Evidence from Trump's 2016 surprise election," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 691-700.
    9. repec:eme:mfppss:v:41:y:2015:i:10:p:1002-1031 is not listed on IDEAS
    10. Child, Travers Barclay & Massoud, Nadia & Schabus, Mario & Zhou, Yifan, 2021. "Surprise election for Trump connections," Journal of Financial Economics, Elsevier, vol. 140(2), pages 676-697.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    U.S. Cabinet; revolving door; event study; prediction market; stock market;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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