TY - JOUR
T1 - Presidential economic approval rating and the cross-section of stock returns
AU - Chen, Zilin
AU - Da, Zhi
AU - Huang, Dashan
AU - Wang, Liyao
N1 - Funding information:
Zhi Da acknowledges financial support from Beijing Outstanding Young Scientist Program (BJJWZYJH01201910034034) and the 111 Project (B20094). Dashan Huang acknowledges that this study was written with support from the ASEAN Business Research Initiative (ABRI) grant # G17C204018.
Publisher copyright:
© 2022 Elsevier B.V.
PY - 2023/1
Y1 - 2023/1
N2 - 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.
AB - 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.
KW - Political cycle
KW - Presidential economic approval rating
KW - Presidential job approval rating
KW - Presidential puzzle
KW - Sentiment
UR - http://www.scopus.com/inward/record.url?scp=85141486557&partnerID=8YFLogxK
U2 - 10.1016/j.jfineco.2022.10.004
DO - 10.1016/j.jfineco.2022.10.004
M3 - Article
SN - 0304-405X
VL - 147
SP - 106
EP - 131
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 1
ER -