Why Has the Stock Market Risen so Much Since the Us Presidential Election?

21 Pages Posted: 4 Oct 2018 Last revised: 29 Apr 2020

See all articles by Olivier Blanchard

Olivier Blanchard

Peterson Institute for International Economics

Christopher G Collins

Board of Governors of the Federal Reserve System

Mohammad R. Jahan-Parvar

Board of Governors of the Federal Reserve System

Thomas Pellet

Peterson Institute for International Economics

Beth Anne Wilson

Board of Governors of the Federal Reserve System

Date Written: 2018-08-21

Abstract

This paper looks at the evolution of U.S. stock prices from the time of the Presidential elections to the end of 2017. It concludes that a bit more than half of the increase in the aggregate U.S. stock prices from the presidential election to the end of 2017 can be attributed to higher actual and expected dividends. A general improvement in economic activity and a decrease in economic policy uncertainty around the world were the main factors behind the stock market increase. The prospect and the eventual passage of the corporate tax bill nevertheless played a role. And while part of the rise in stock returns came from a decrease in the equity risk premium, this decrease was relatively limited and returned the premium to the levels of the first half of the 2000s.

Keywords: Dividends, Earnings, Equity returns, Equity premium, Gordon formula, Tax reform, U.S. presidential election

JEL Classification: G12, G18

Suggested Citation

Blanchard, Olivier and Collins, Christopher G. and Jahan-Parvar, Mohammad and Pellet, Thomas and Wilson, Beth Anne, Why Has the Stock Market Risen so Much Since the Us Presidential Election? (2018-08-21). FRB International Finance Discussion Paper No. 1235, Available at SSRN: https://ssrn.com/abstract=3241195 or http://dx.doi.org/10.17016/IFDP.2018.1235

Olivier Blanchard (Contact Author)

Peterson Institute for International Economics ( email )

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Christopher G. Collins

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Mohammad Jahan-Parvar

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://sites.google.com/site/mrjahan/

Thomas Pellet

Peterson Institute for International Economics

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

Beth Anne Wilson

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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