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.
Original language | English |
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Pages (from-to) | 106-131 |
Number of pages | 26 |
Journal | Journal of Financial Economics |
Volume | 147 |
Issue number | 1 |
Early online date | 7 Nov 2022 |
DOIs | |
Publication status | Published - Jan 2023 |
User-Defined Keywords
- Political cycle
- Presidential economic approval rating
- Presidential job approval rating
- Presidential puzzle
- Sentiment