Presidential economic approval rating and the cross-section of stock returns

Zilin Chen; Zhi Da; Dashan Huang; Liyao Wang

doi:10.1016/j.jfineco.2022.10.004

Journal of Financial Economics Vol. 147 No. 1 2023

Presidential economic approval rating and the cross-section of stock returns

Zilin Chen¹; Zhi Da ²; Dashan Huang³; Liyao Wang⁴

¹ Southwestern University of Finance and Economics · ² University of Notre Dame · ³ Singapore Management University · ⁴ Hong Kong Baptist University

open access

Abstract

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.

DOI: 10.1016/j.jfineco.2022.10.004
Volume: 147
Issue: 1
Pages: 106-131
Language: en
Sources: openalex crossref bibtex:phds-export.bib

Presidential economic approval rating and the cross-section of stock returns

Abstract

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