Speculating on Presidential Success: Exploring the Link Between the Price-Earnings Ratio and Approval Ratings

26 Pages Posted: 12 Dec 2008 Last revised: 10 Jul 2009

See all articles by Tomasz Piotr Wisniewski

Tomasz Piotr Wisniewski

Open University, UK

Geoff Lightfoot

University of Leicester School of Management

Simon Lilley

University of Leicester - Management Centre

Date Written: December 12, 2008

Abstract

Stock markets and politics are enduring staples of dinner party conversations but surprisingly little is known about the interaction between the two. Here we present evidence for a robust relationship between a key financial measure - the aggregate price earnings ratio - and surveyed approval of the incumbent president. We argue, following the finance literature, that the price-earnings ratio represents a composite measure of investors' hopes and fears. The partially prospective nature of this ratio enables us to shed new light upon the controversy surrounding how the electorate attends to economic circumstances in judging its presidents.

Keywords: Political Economy, Price-Earnings Ratio, Presidential Approval

JEL Classification: G10, G14, P16

Suggested Citation

Wisniewski, Tomasz Piotr and Lightfoot, Geoff and Lilley, Simon, Speculating on Presidential Success: Exploring the Link Between the Price-Earnings Ratio and Approval Ratings (December 12, 2008). Available at SSRN: https://ssrn.com/abstract=1315275 or http://dx.doi.org/10.2139/ssrn.1315275

Tomasz Piotr Wisniewski (Contact Author)

Open University, UK ( email )

Walton Hall
Milton Keynes, Buckinghamshire MK7 6AA
United Kingdom

Geoff Lightfoot

University of Leicester School of Management ( email )

United Kingdom

Simon Lilley

University of Leicester - Management Centre ( email )

United Kingdom

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