Abstract
We explore how the US presidential effect in stock returns is connected to the US presidential effect in foreign exchange returns to the US dollar. Our results for the 1973–2016 period show that the existence of a presidential effect in stock returns depends on how a firm’s stock returns are associated with changes in the value of the US dollar. We document that a complex association exists between presidential effects in stock returns, stock risk premiums, macro-economic variables, and the foreign exchange market. Overall, the presidential effect in stock returns is driven by exporters through their exposure to the presidential effect in returns to the US dollar.
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Notes
In untabulated tests, we confirm that our results hold for value-weighted portfolio returns. Robustness to value weighting suggests that variation in firm size across importers and exporters does not drive our findings.
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Ashour, S., Rakowski, D. & Sarkar, S.K. Currency risk exposure and the presidential effect in stock returns. J Econ Finan 45, 469–485 (2021). https://doi.org/10.1007/s12197-020-09528-2
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DOI: https://doi.org/10.1007/s12197-020-09528-2