Presidential economic approval rating and the cross-section of stock returns

Zilin Chen, Zhi Da, Dashan Huang and Liyao Wang

Journal of Financial Economics, 2023, vol. 147, issue 1, 106-131

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: Presidential puzzle; Political cycle; Presidential economic approval rating; Presidential job approval rating; Sentiment (search for similar items in EconPapers)
JEL-codes: G12 G14 G40 G41 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X22002240
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:147:y:2023:i:1:p:106-131

DOI: 10.1016/j.jfineco.2022.10.004

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().