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Does local political support influence financial markets? A study on the impact of job approval ratings of political representatives on local stock returns

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  • Sunghoon Joo
  • Dong H. Kim
  • Jung Chul Park

Abstract

Using data on job approval ratings of governors, U.S. senators, and the president, we find that firms located in states with high approval ratings outperform firms located in states with low approval ratings by .64% per month. Furthermore, this relationship is stronger when investors are actively involved in politics, when local politicians are closer to the center of political power, for small firms that have a larger proportion of local investors, and for financially strong areas where investors are ready to execute investments in local stocks. Overall, our study shows that investors’ political sentiment is important in determining stock returns.

Suggested Citation

  • Sunghoon Joo & Dong H. Kim & Jung Chul Park, 2020. "Does local political support influence financial markets? A study on the impact of job approval ratings of political representatives on local stock returns," The Financial Review, Eastern Finance Association, vol. 55(2), pages 247-276, May.
    • Handle: RePEc:bla:finrev:v:55:y:2020:i:2:p:247-276
    DOI: 10.1111/fire.12211
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