Currency risk exposure and the presidential effect in stock returns

Abstract

We explore how the US presidential effect in stock prices is connected to the US presidential effect in foreign exchange returns to the US dollar. Our results show that the existence of a presidential effect in stock returns depends on how a firm’s stock returns are associated with changes in the value of the US dollar. We document that a complex association exists between presidential effects in stock returns, stock risk premiums, macro-economic variables, and the foreign exchange market.

Keywords: US dollar; foreign exchange markets; Presidential cycles; politics and finance.

JEL Classification: F310; F400; G150; G180; E650; P480