Publication Type

Journal Article

Version

acceptedVersion

Publication Date

1-2023

Abstract

We construct a monthly presidential economic approval rating (PEAR) index from 1981 to 2019, by averaging ratings on the president’s handling of the economy across various national polls. In the cross-section, stocks with high betas to changes in the PEAR index significantly under-perform those with low betas by 1.00% per month in the future, on a risk-adjusted basis. The low PEAR beta premium persists up to one year, and is present in various sub-samples and even in other G7 countries. PEAR beta dynamically reveals a firm’s perceived alignment to the incumbent president’s economic policies and investors seem to misprice such an alignment.

Keywords

Political cycle, Presidential economic approval rating, Presidential job approval rating, Presidential puzzle, Sentiment

Discipline

Finance and Financial Management | Political Economy | Portfolio and Security Analysis

Research Areas

Finance

Publication

Journal of Financial Economics

Volume

147

Issue

1

First Page

106

Last Page

131

ISSN

0304-405X

Identifier

10.1016/j.jfineco.2022.10.004

Publisher

Elsevier

Additional URL

https://doi.org/10.1016/j.jfineco.2022.10.004

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