Is the presidential premium spurious?

Oumar Sy, Ashraf Al Zaman

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)

Abstract

A hotly debated question in finance is whether the higher stock returns under Democratic presidencies relative to Republican presidencies represent abnormal return, risk premium, or mere statistical fluke. This paper investigates whether this presidential premium is due to spurious-regression bias, data mining, or economic policy uncertainty. Decomposing the presidential premium into expected and unexpected components, we find that over two-thirds of the premium is unexpected, which is inconsistent with the spurious regression bias explanation. The presidential premium is not explained by data mining given that it persists in the post-publication period, and remains robust even if we purge returns of their covariation with economic policy uncertainty.

Original languageEnglish
Pages (from-to)94-104
Number of pages11
JournalJournal of Empirical Finance
Volume56
DOIs
Publication statusPublished - Mar 2020

Bibliographical note

Publisher Copyright:
© 2020 Elsevier B.V.

ASJC Scopus Subject Areas

  • Finance
  • Economics and Econometrics

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