Is There a Presidential Election Cycle in Firm Financials?
2016 ◽
Vol 19
(02)
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pp. 1650010
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Keyword(s):
A presidential election cycle (PEC) in stock returns has been well-documented in the academic literature. Prior studies have pointed to economic policy as a cause of the phenomenon apparently overlooking the role of firm value. This study examines changes in firm valuation as the cause. Using firm-level data, this study finds a convincing cycle in firms’ book-to-market (BE/ME) ratios, earnings yield and most notable, in log-changes in annual revenue. In particular, log-changes in revenue during the election year appear to be instrumental in the previously document PEC in stock returns.