Does the U.S. President Affect the Stock Market?
45 Pages Posted: 2 Nov 2014 Last revised: 1 Dec 2019
Date Written: November 1, 2018
In this paper, I identify a novel channel through which political opinions affect asset prices. Rather than look at differences in expectations between Republicans and Democrats, I analyze political beliefs from an aggregate perspective. Using Gallup's polling data, I find that higher disapproval over the U.S. president's job is associated with an increase in trading volume and short-selling activity, and followed by lower stock returns. The effect is especially large in times of low sentiment and high uncertainty, and explains away Santa-Clara and Valkanov's (2003) "presidential puzzle". Notably, the results are particularly strong among stocks regarded as politically sensitive.
Keywords: Politics; Approval ratings; Short-sales constraints; Return predictability
JEL Classification: G12, G14, G18
Suggested Citation: Suggested Citation