Asset prices, midterm elections, and political uncertainty

Kam Fong Chan and Terry Marsh

Journal of Financial Economics, 2021, vol. 141, issue 1, 276-296

Abstract: This study attests to the important role of US midterm elections in asset pricing, even more important than presidential elections. In months following the midterms, equity premiums, mutual fund flows, and real investment growth rates are significantly higher and Treasury premiums are lower. This is consistent with theoretical models relating higher asset prices to lower future discount rates when post-election political uncertainty decreases. The results are robust to different measures of uncertainty. Also, market betas relate positively to the cross section of average returns in post-midterm months, but the relation is flat in other months.

Keywords: Political uncertainty; Midterm election; Capital asset pricing model (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:141:y:2021:i:1:p:276-296

DOI: 10.1016/j.jfineco.2021.03.007

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