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Company Stock Reactions to the 2016 Election Shock: Trump, Taxes and Trade

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  • Alexander Wagner
  • Richard J. Zeckhauser
  • Alexandre Ziegler

Abstract

The election of Donald J. Trump as the 45th President of the United States of America on 11/8/2016 came as a surprise. Markets responded swiftly and decisively. This note investigates both the initial stock market reaction to the election, and the longer-term reaction through the end of 2016. We find that the individual stock price reactions to the election – that is, the market’s vote – reflect investor expectations on economic growth, taxes, and trade policy. Heavy industry and banking were relative winners, whereas healthcare, medical equipment, pharmaceuticals, textiles, and apparel were among the relative losers. High-beta stocks and companies with a hitherto high tax burden benefited from the election. Although internationally-oriented companies may profit under some plans of the new administration, several other arguments suggest a more favorable climate for domestically-oriented companies. Investors have found the domestic-favoring arguments to be stronger. While investors incorporated the expected consequences of the election for US growth and tax policy into prices relatively quickly, it took them more time to digest the consequences of shifts in trade policy on firms’ prospects.

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  • Alexander Wagner & Richard J. Zeckhauser & Alexandre Ziegler, 2017. "Company Stock Reactions to the 2016 Election Shock: Trump, Taxes and Trade," NBER Working Papers 23152, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:23152
    Note: AP CF IFM ITI POL
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    References listed on IDEAS

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    1. Pedro Santa‐Clara & Rossen Valkanov, 2003. "The Presidential Puzzle: Political Cycles and the Stock Market," Journal of Finance, American Finance Association, vol. 58(5), pages 1841-1872, October.
    2. Michael J. Barclay, 2003. "Price Discovery and Trading After Hours," The Review of Financial Studies, Society for Financial Studies, vol. 16(4), pages 1041-1073.
    3. Schwert, G William, 1981. "Using Financial Data to Measure Effects of Regulation," Journal of Law and Economics, University of Chicago Press, vol. 24(1), pages 121-158, April.
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    Cited by:

    1. Wagner, Alexander F. & Zeckhauser, Richard & Ziegler, Alexandre, 2020. "The Tax Cuts and Jobs Act: Which Firms Won? Which Lost?," CEPR Discussion Papers 14950, C.E.P.R. Discussion Papers.
    2. Yi Huang & Chen Lin & Sibo Liu & Heiwai Tang, 2018. "Trade Linkages and Firm Value: Evidence from the 2018 US-China “Trade War”," IHEID Working Papers 11-2018, Economics Section, The Graduate Institute of International Studies.
    3. Daniele Girardi, 2018. "Political shocks and financial markets : regression-discontinuity evidence from national elections," UMASS Amherst Economics Working Papers 2018-08, University of Massachusetts Amherst, Department of Economics.
    4. Blanchard, Olivier & Collins, Christopher G. & Jahan-Parvar, Mohammad R. & Pellet, Thomas & Wilson, Beth Anne, 2018. "A year of rising dangerously? The U.S. stock market performance in the aftermath of the presidential election," Journal of Policy Modeling, Elsevier, vol. 40(3), pages 489-502.
    5. Stefano Ramelli & Alexander F Wagner & Richard J Zeckhauser & Alexandre Ziegler, 2021. "Investor Rewards to Climate Responsibility: Stock-Price Responses to the Opposite Shocks of the 2016 and 2020 U.S. Elections [Asset pricing with liquidity risk]," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 10(4), pages 748-787.
    6. Alexander F. Wagner & Richard J. Zeckhauser & Alexandre Ziegler, 2017. "Paths to Convergence: Stock Price Behavior After Donald Trump's Election," Swiss Finance Institute Research Paper Series 17-36, Swiss Finance Institute, revised Feb 2018.
    7. Zhang, Si Ying, 2021. "Using equity market reactions and network analysis to infer global supply chain interdependencies in the context of COVID-19," Journal of Economics and Business, Elsevier, vol. 115(C).
    8. de Area Leão Pereira, Eder Johnson & da Silva, Marcus Fernandes & da Cunha Lima, I.C. & Pereira, H.B.B., 2018. "Trump’s Effect on stock markets: A multiscale approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 512(C), pages 241-247.
    9. Pedro L. Angosto‐Fernández & Victoria Ferrández‐Serrano, 2022. "Independence day: Political risk and cross‐sectional determinants of firm exposure after the Catalan crisis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4318-4335, October.
    10. Ziemowit Bednarek & Jacqueline Doremus & Sarah Stith, 2021. "U.S. Cannabis Laws Projected to Cost Generic and Brand Pharmaceutical Firms Billions," Working Papers 2102, California Polytechnic State University, Department of Economics.
    11. Brownback, Andy & Novotny, Aaron, 2018. "Social desirability bias and polling errors in the 2016 presidential election," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 74(C), pages 38-56.

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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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