Can we insure against political uncertainty? Evidence from the U.S. stock market
- 325 Downloads
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.
KeywordsPolitical uncertainty Hedge Financial markets
JEL ClassificationD7 G10
Unable to display preview. Download preview PDF.
- 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. Google Scholar
- Alvarez, R. M. (1998). Information and elections. Ann Arbor: University of Michigan Press. Google Scholar
- 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. Google Scholar
- Cutler, D. (1988). Tax reform and the stock market: an asset price approach. American Economic Review, 78, 1107–1117. Google Scholar
- Fisman, R. (2001). Estimating the value of political connections. American Economic Review, 91, 1095–1102. Google Scholar
- Forsythe, R., Nelson, F., & Wright, J. (1992). Anatomy of an experimental political stock market. American Economic Review, 82, 1142–1161. Google Scholar
- Mattozzi, A. (2005). Policy uncertainty, electoral securities and redistribution. Working Paper, Caltech. Google Scholar
- Thompson, E. A. (1966). A Pareto optimal group decision process. In G. Tullock (Ed.), Papers on non-market decision making. Charlottesville: University of Virginia. Google Scholar
- Thompson, E. A. (1967). A reply. Public Choice, 1, 109–112. Google Scholar