Government Policy Announcement Return
38 Pages Posted: 28 Jan 2022
Date Written: December 1, 2021
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: Suggested Citation