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 language | English |
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Article number | 100704 |
Pages (from-to) | 1-24 |
Journal | Journal of Financial Markets |
Volume | 61 |
Early online date | 8 Jan 2022 |
DOIs | |
Publication status | Published - 2022 |
Keywords
- Politics
- Approval ratings
- Heterogeneous beliefs
- Return predictability