Structural changes in sentiment and returns: evidence from the Trump election

Mary Becker, Zachary McGurk and Michael Hale

Applied Economics Letters, 2022, vol. 29, issue 10, 901-905

Abstract: Given that regime changes may induce new tendencies and behaviours of financial models, we analyse the impact of sentiment variables on stock market returns for time periods before and after Donald Trump’s election. Using the CAPM and Fama–French three-factor model augmented with sentiment measures, we find evidence of a structural break in the 2016 presidential election data. Our results suggest that the relationship between sentiment and abnormal returns is more negative for the periods following the election, and that researchers modelling sentiment and returns should account for structural breaks.

Date: 2022
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DOI: 10.1080/13504851.2021.1897069

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