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

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

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...

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Bibliographic Details
Main Authors: CHEN, Zilin, DA, Zhi, HUANG, Dashan, WANG, Liyao
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2023
Subjects:
Political cycle
Presidential economic approval rating
Presidential job approval rating
Presidential puzzle
Sentiment
Finance and Financial Management
Political Economy
Portfolio and Security Analysis
Online Access:https://ink.library.smu.edu.sg/lkcsb_research/7104
https://ink.library.smu.edu.sg/context/lkcsb_research/article/8103/viewcontent/PEAR_av.pdf
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Institution: Singapore Management University
Language: English
Description
Summary: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.

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