Does the U.S. President Affect the Stock Market?
37 Pages Posted: 2 Nov 2014 Last revised: 14 Oct 2020
Date Written: October 1, 2020
In this paper, I identify a novel channel through which political beliefs affect investor behavior. Instead of considering differences of opinion between Republicans and Democrats, I analyze nonpartisan evaluations of the executive using Gallup's presidential approval ratings. I find that large net disapproval over the U.S. president's job is followed by low stock returns, especially in times of high political uncertainty and low market-wide sentiment. Notably, this mechanism explains away Santa-Clara and Valkanov's (2003) "presidential puzzle", and becomes more pronounced among politically sensitive stocks. The findings suggest that nonpartisan political beliefs have a substantial impact on asset prices.
Keywords: Politics; Approval ratings; Heterogeneous beliefs; Return predictability
JEL Classification: G12, G14, G18
Suggested Citation: Suggested Citation