Government Policy Announcement Return

38 Pages Posted: 28 Jan 2022

See all articles by Yang Liu

Yang Liu

The University of Hong Kong - Faculty of Business and Economics

Ivan Shaliastovich

University of Wisconsin - Madison

Date Written: December 1, 2021

Abstract

We argue that State of the Union (SOTU) addresses by the U.S. President function as announcements about broad government policies related to upcoming legislative activity of the administration. Unlike traditional macroeconomic and monetary policy announcements, SOTU addresses go back to the 1930s, which allows to expand the sample and context for the announcement effects for financial markets. We find that stock market returns on SOTU days are about ten times larger than on other days, are less volatile, and show strong pre-announcement drift prior to the address. SOTU returns increase in adverse economic, political and high volatility times, more so than on other announcement days. The overall evidence supports the risk premium/uncertainty resolution channel for announcement effects.

JEL Classification: E60, G12, G18

Suggested Citation

Liu, Yang and Shaliastovich, Ivan, Government Policy Announcement Return (December 1, 2021). Available at SSRN: https://ssrn.com/abstract=4016112 or http://dx.doi.org/10.2139/ssrn.4016112

Yang Liu (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Ivan Shaliastovich

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

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