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Can We Insure Against Political Uncertainty? Evidence from the U.S. Stock Market

Mattozzi, Andrea (2004) Can We Insure Against Political Uncertainty? Evidence from the U.S. Stock Market. Social Science Working Paper, 1207. California Institute of Technology , Pasadena, CA. (Unpublished) https://resolver.caltech.edu/CaltechAUTHORS:20190426-135654556

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Abstract

We show that existing stocks that are currently traded in the U.S. stock market can be used to hedge political uncertainty. Focusing on the 2000 U.S. Presidential election, we construct two "presidential portfolios" composed of selected stocks anticipated to fare differently under a Bush versus a Gore presidency. To construct these portfolios we 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, we show that the excess returns of these portfolios with respect to overall market movements are significantly related to changes in electoral polls.


Item Type:Report or Paper (Working Paper)
Additional Information:I am grateful to Bob Inman, Andrew Postlewaite, Frank Schorfheide, and in particular to Antonio Merlo for their comments and encouragement. I also benefitted from discussions with Celso Brunetti, Marco Cozzi, Jan Eeckhout, Daniela Iorio, Dirk Krueger and Nicola Persico. All usual disclaimers apply.
Group:Social Science Working Papers
Subject Keywords:Political Uncertainty, Financial Markets
Series Name:Social Science Working Paper
Issue or Number:1207
Classification Code:JEL: D7, G10
Record Number:CaltechAUTHORS:20190426-135654556
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20190426-135654556
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:95033
Collection:CaltechAUTHORS
Deposited By: Katherine Johnson
Deposited On:26 Apr 2019 21:02
Last Modified:03 Oct 2019 21:09

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