Can we insure against political uncertainty? Evidence from the U.S. stock market
- Andrea Mattozzi
- … show all 1 hide
Purchase on Springer.com
$39.95 / €34.95 / £29.95*
Rent the article at a discountRent now
* Final gross prices may vary according to local VAT.
I show that shares currently traded on U.S. stock markets can be used to hedge political uncertainty. Focusing on the 2000 U.S. presidential election, I construct two “presidential portfolios” composed of selected stocks anticipated to fare differently under a Bush versus a Gore presidency. To construct these portfolios I use data on campaign contributions by publicly traded corporations and identify the major contributors on each side. Using daily observations for the six months before the election took place, I show that the excess returns of these portfolios with respect to overall market movements are significantly related to changes in electoral polls.
- Aizcorbe, A. M., Kennickell, A. B., & Moore, K. B. (2003). Recent changes in U.S. family finances: evidence from the 1998 and 2001 survey of consumer finances. Federal Reserve Bulletin,1.
- Alvarez, R. M. (1998). Information and elections. Ann Arbor: University of Michigan Press.
- Ayers, B., Cloyd, C. B., & Robinson, J. R. (2005). Read my lips …: does the tax rhetoric of presidential candidates affect security prices? The Journal of Law and Economics, 48, 125–148. CrossRef
- Bailey, M. J. (1996). Implementation of the Thompson mechanism. Public Choice, 89, 231–243. CrossRef
- Bailey, M. J. (1997). Toward a new constitution for a future country. Public Choice, 90, 73–115. CrossRef
- Bertaut, C. C., & Starr-McCluer, M. (2002). Household portfolios in the United States. In L. Guiso, M. Haliassos, & T. Jappelli (Eds.), Household portfolios. Cumberland: MIT Press.
- Celentani, M., Conde-Ruiz, J. I., & Desmet, K. (2004). Endogenous policy leads to inefficient risk sharing. Review of Economic Dynamics, 7, 758–787. CrossRef
- Cutler, D. (1988). Tax reform and the stock market: an asset price approach. American Economic Review, 78, 1107–1117.
- Fisman, R. (2001). Estimating the value of political connections. American Economic Review, 91, 1095–1102.
- Forsythe, R., Nelson, F., & Wright, J. (1992). Anatomy of an experimental political stock market. American Economic Review, 82, 1142–1161.
- Herron, M. C., Lavin, J., Silver, J., & Cram, D. (1999). Measurement of political effects in the United States economy: a study of the 1992 presidential election. Economics & Politics, 31, 51–81. CrossRef
- Knight, B. G. (2007). Are policy platforms capitalized into equity prices? Evidence from the Bush/Gore 2000 presidential election. Journal of Public Economics, 91, 389–409. CrossRef
- Mattozzi, A. (2005). Policy uncertainty, electoral securities and redistribution. Working Paper, Caltech.
- Musto, D. K., & Yilmaz, B. (2003). Trading and voting. Journal of Political Economy, 111, 990–1003. CrossRef
- Pantzalis, C., Stangeland, D. A., & Turtle, H. J. (2000). Political elections and the resolution of uncertainty: the international evidence. Journal of Banking and Finance, 24, 1575–1603. CrossRef
- Roberts, B. E. (1990). Political institutions, policy expectations, and the 1980 election: a financial market perspective. American Journal of Political Science, 34, 289–310. CrossRef
- Santa-Clara, P., & Valkanov, R. (2003). The presidential puzzle: political cycles and the stock market. Journal of Finance, 58, 1841–1872. CrossRef
- Sinai, T., & Gyourko, J. (2004). The asset price incidence of capital gains taxes: evidence from the taxpayer relief act of 1997 and publicly-traded real estate firms. Journal of Public Economics, 88, 1543–1565. CrossRef
- Thompson, E. A. (1966). A Pareto optimal group decision process. In G. Tullock (Ed.), Papers on non-market decision making. Charlottesville: University of Virginia.
- Thompson, E. A. (1967). A reply. Public Choice, 1, 109–112.
- Can we insure against political uncertainty? Evidence from the U.S. stock market
Volume 137, Issue 1-2 , pp 43-55
- Cover Date
- Print ISSN
- Online ISSN
- Springer US
- Additional Links
- Political uncertainty
- Financial markets
- Industry Sectors
- Andrea Mattozzi (1)
- Author Affiliations
- 1. Division of the Humanities and Social Sciences, California Institute of Technology, 1200 East California Blvd., Pasadena, CA, 91125, USA