Politics and Stock Returns: A Rationalization

Zaman, Ashraf Al; Sy, Oumar

doi:10.2139/ssrn.2116610

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Politics and Stock Returns: A Rationalization

23 Pages Posted: 24 Jul 2012

See all articles by Ashraf Al Zaman

Ashraf Al Zaman

Sobey School of Business, St. Mary's University, Canada; Saint Mary's University, Canada - Sobey School of Business

Oumar Sy

Dalhousie University

Date Written: July 24, 2012

Abstract

In this study, we find some evidence in favor of systematic risk being priced in the cross-section of stock returns when the effects of presidential cycles and political environments are taken into account. During Democratic presidencies or harmonious political environments, beta has a positive relation to stock returns, but is negatively related to returns during Republican presidencies or in gridlock periods. We find that both the presidential puzzle and the harmony premium can be rationalized when the effects of politics on the beta-return relation are taken into account.

Keywords: Asset pricing, CAPM, Presidential puzzle, Cross sectional test

JEL Classification: G11, G12, G14, C21

Suggested Citation: Suggested Citation

Zaman, Ashraf Al and Zaman, Ashraf Al and Sy, Oumar, Politics and Stock Returns: A Rationalization (July 24, 2012). Available at SSRN: https://ssrn.com/abstract=2116610 or http://dx.doi.org/10.2139/ssrn.2116610