Is the Presidential Premium Spurious

41 Pages Posted: 2 Dec 2020

See all articles by Oumar Sy

Oumar Sy

Dalhousie University

Ashraf Al Zaman

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

Date Written: November 17, 2020

Abstract

A hotly debated question in finance is whether the higher stock returns under Democratic presidencies relative to Republican presidencies represent abnormal return, risk premium, or mere statistical fluke. This paper investigates whether this presidential premium is due to spurious-regression bias, data mining, or economic policy uncertainty. Decomposing the presidential premium into expected and unexpected components, we find that over two-thirds of the premium is unexpected, which is inconsistent with the spurious regression bias explanation. The presidential premium is not explained by data mining given that it persists in the post-publication period, and remains robust even if we purge returns of their covariation with economic policy uncertainty.

Keywords: Presidential premium; Presidential puzzle; Spurious regression bias; Data mining; Economic policy uncertainty

JEL Classification: G12; G14; G18

Suggested Citation

Sy, Oumar and Zaman, Ashraf Al and Zaman, Ashraf Al, Is the Presidential Premium Spurious (November 17, 2020). Journal of Empirical Finance, Vol. 56, 2020, Available at SSRN: https://ssrn.com/abstract=3732445 or http://dx.doi.org/10.2139/ssrn.3732445

Oumar Sy

Dalhousie University ( email )

6225 University Avenue
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Ashraf Al Zaman (Contact Author)

Sobey School of Business, St. Mary's University, Canada ( email )

923 Robie Street
Halifax, Nova Scotia B3H 3C3
Canada
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902-496-8101 (Fax)

HOME PAGE: http://www.smu.ca/academic/sobey/biographies/faculty/ashraf-zaman.html

Saint Mary's University ( email )

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Canada
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