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
Citation
CHEN, Zilin; DA, Zhi; HUANG, Dashan; and WANG, Liyao.
Presidential economic approval rating and the cross-section of stock returns. (2023). Journal of Financial Economics. 147, (1), 106-131.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7104
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.jfineco.2022.10.004
Included in
Finance and Financial Management Commons, Political Economy Commons, Portfolio and Security Analysis Commons