Market betas have a strong and positive relation with average stock returns on a handful of days every year. Such unique days, defined as leading earnings announcement days (LEADs), are times when an aggregate of influential S&P 500 firms disclose quarterly earnings news early in the earnings season. The positive return-to-beta relation holds for various test portfolios, individual stocks, and Treasuries; and is robust to different data frequencies and testing procedures. On days other than LEADs, the beta-return relation is flat. We conclude that waves of early earnings announcements by large firms clustered on LEADs significantly influence asset pricing.

This study attests to the important role of US midterm elections in asset pricing, even more important than presidential elections. In months following the midterms, equity premiums, mutual fund flows, and real investment growth rates are significantly higher and Treasury premiums are lower. This is consistent with theoretical models relating higher asset prices to lower future discount rates when post-election political uncertainty decreases. The results are robust to different measures of uncertainty. Also, market betas relate positively to the cross section of average returns in post-midterm months, but the relation is flat in other months.

In this study, we provide empirical evidence that firm-level jump-induced tail risk (measured by a jump-implied variance contribution index [JIVX]) prospectively predicts cross-sectional stock returns around earnings announcements. The effect size is nontrivial. A practical trading strategy that buys announcers with high pre-news JIVX values and sells announcers with low pre-news JIVX values, earns a net risk-adjusted average return of 82 basis points (bps) three days after the news release. Notably, the empirical success of the JIVX predictor is distinct from model-free implied skewness and kurtosis measures and withstands a battery of robustness checks.

We use a general Markov switching model to examine the relationships between returns over three different asset classes: financial assets (US stocks and Treasury bonds), commodities (oil and gold) and real estate assets (US Case–Shiller index). We confirm the existence of two distinct regimes: a “tranquil” regime with periods of economic expansion and a “crisis” regime with periods of economic decline. The tranquil regime is characterized by lower volatility and significantly positive stock returns. During these periods, there is also evidence of a flight from quality – from gold to stocks. By contrast, the crisis regime is characterized by higher volatility and sharply negative stock returns, along with evidence of contagion between stocks, oil and real estate. Furthermore, during these periods, there is strong evidence of a flight to quality – from stocks to Treasury bonds.

The first 100 days of a newly-elected President's administration are often a period of substantial and concentrated policy change. This paper shows that measures of uncertainty and risk aversion rise sharply during Presidential honeymoons. Consistent with theoretical models that suggest that investors demand compensation for bearing heightened political risk, we document striking spread returns to value, investment and profitability anomalies during honeymoons. For example, the book-to-market value premium averages 3.51% per month during Presidential honeymoons, yet only 0.27% per month at other times. These findings survive numerous robustness checks. Nonetheless, establishing a direct link between escalating political risk and equity returns proves challenging.