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Session Chair: Hengjie Ai, University of Wisconsin-Madison Discussant: Yu Li, SAIF, Shanghai Jiaotong University
Location:9B301 (3rd basement floor, International Hall)
Presentations
Political Announcement Return
Yang Liu1, Ivan Shaliastovich2
1University of Hong Kong, Hong Kong S.A.R. (China); 2University of Wisconsin-Madison
Major political events, such as Elections and the delivery of the State of the Union (SOTU) address, reveal subsequent course of government policy and set future political agenda in the U.S. Similar to traditional macroeconomic and monetary policy announcements, political announcements are associated with abnormal stock market returns of 50 bp on Election and 30 bp on SOTU days, relative to 3 bp daily average. Political announcement returns increase in adverse times of low economic growth and high aggregate volatility, and exhibit pre-announcement drift. We develop an illustrative model for political announcements and show that channels of risk premium/early resolution of uncertainty and optimal choice of government policy can account for the evidence in the data.
