Does the U.S. president affect the stock market?

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

Previous research shows that Democrat- and Republican-leaning investors hold different stock market expectations. In this paper, I identify a novel channel through which political opinions affect investor behavior. Instead of political affiliation, I consider nonpartisan evaluations of the executive from presidential approval rating polls. I find that large net disapproval over the U.S. president’s job is followed by low stock returns, especially in times of high political uncertainty and low market-wide sentiment. Notably, this mechanism explains away Santa-Clara and Valkanov’s (2003) “presidential puzzle.” Overall, the findings suggest that nonpartisan political views have a substantial impact on stock prices.
Original languageEnglish
Article number100704
Pages (from-to)1-24
JournalJournal of Financial Markets
Volume61
Early online date8 Jan 2022
DOIs
Publication statusPublished - 2022

Keywords

  • Politics
  • Approval ratings
  • Heterogeneous beliefs
  • Return predictability

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