Paths to Convergence: Stock Price Adjustment After the Trump Election Shock

62 Pages Posted: 15 Sep 2017 Last revised: 13 Aug 2018

See all articles by Alexander F. Wagner

Alexander F. Wagner

University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swiss Finance Institute

Richard J. Zeckhauser

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Alexandre Ziegler

University of Zurich - Department of Banking and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: July 31, 2018

Abstract

How do market prices adjust towards stability after a shock? Tracking individual stock prices following their dramatic shakeup after Donald Trump’s surprise election provides an answer. Prices moved overwhelmingly in the appropriate direction on the first post-election day, albeit much too little. Relative prices needed several daily iterations to converge. Three days of historically strong cross-sectional momentum were followed by a brief reversal. Prices then settled. Firm characteristics that explained first-day returns, such as corporate taxes and foreign revenues, accounted for most of the observed momentum. These findings support prominent theories of slow but predictable diffusion of information into prices.

Keywords: Stock returns, price spreads, momentum, reversal, post-news drift, election surprise, market efficiency, predictability, price contribution analysis, corporate taxes, trade policy, event study

JEL Classification: G12, G14, H25, O24

Suggested Citation

Wagner, Alexander F. and Zeckhauser, Richard J. and Ziegler, Alexandre, Paths to Convergence: Stock Price Adjustment After the Trump Election Shock (July 31, 2018). HKS Working Paper No. RWP17-039; Swiss Finance Institute Research Paper No. 17-36. Available at SSRN: https://ssrn.com/abstract=3037023 or http://dx.doi.org/10.2139/ssrn.3037023

Alexander F. Wagner

University of Zurich - Department of Banking and Finance ( email )

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Centre for Economic Policy Research (CEPR) ( email )

London
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European Corporate Governance Institute (ECGI) ( email )

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Swiss Finance Institute ( email )

Switzerland

HOME PAGE: http://www.alex-wagner.com

Richard J. Zeckhauser (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

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Cambridge, MA 02138
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National Bureau of Economic Research (NBER) ( email )

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617-496-3783 (Fax)

Alexandre Ziegler

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
Zürich, 8032
Switzerland

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