Abstract. Previous research shows that Democrat- and Republican-leaning investors hold different stock market expectations. In this paper, I identify a novel channel through which political opinions affect investor behavior. Instead of political affiliation, I consider nonpartisan evaluations of the executive from presidential approval rating polls. I find that large net disapproval over the U.S. president's job is followed by low stock returns, especially in times of high political uncertainty and low market-wide sentiment. Notably, this mechanism explains away Santa-Clara and Valkanov's (2003) "presidential puzzle." Overall, the findings suggest that nonpartisan political views have a substantial impact on stock prices.
Manuscript. You can download the paper here.
Presentations. Utrecht University, the Vienna University of Economics and Business, the Luxembourg School of Finance, the Research in Behavioral Finance Conference at Vrije Universiteit Amsterdam, the Finance Forum at Universidad Pontificia Comillas, the Behavioral Finance Working Group Conference at Queen Mary University of London, the International Finance Conference at ISC Paris, Vrije Universiteit Amsterdam, the Young Finance Scholars' Conference at the University of Sussex, the Erasmus Research Institute of Management, and the Workshop in Econometrics and Empirical Economics at Centro Interuniversitario di Econometria.
Publication. Journal of Financial Markets, Volume 61, November 2022, 100704. DOI: https://doi.org/10.1016/j.finmar.2021.100704.