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.
|Date of creation:||Oct 2004|
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- 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.
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- 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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