Can We Insure against Political Uncertainty? Evidence from the U.s. Stock Market *

Abstract

I show that shares currently traded on U.S. stock markets can be used to hedge political uncertainty. Focusing on the 2000 U.S. presidential election, I construct two " presidential portfolios " composed of selected stocks anticipated to fare differently under a Bush versus a Gore presidency. To construct these portfolios I 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, I show that the excess returns of these portfolios with respect to overall market movements are significantly related to changes in electoral polls. and two anonymous referees for helpful suggestions. All usual disclaimers apply.

10 Figures and Tables

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1 Excerpt

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