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DC Field | Value | Language |
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dc.contributor.advisor | Balvers, Ronald | - |
dc.contributor.author | Mella, Javier | - |
dc.date.accessioned | 2019-07-22T12:46:49Z | - |
dc.date.available | 2019-07-22T12:46:49Z | - |
dc.date.issued | 2019 | - |
dc.identifier.uri | http://hdl.handle.net/11375/24606 | - |
dc.description.abstract | This dissertation contains three essays on partisan politics and its effect on the time series and cross-section of stock returns. The first essay investigates the presidential puzzle (Santa-Clara and Valkanov, 2003) -- the fact that the equity premium is 10% higher in years with Democratic governments than in years with Republican governments. I find the existence of a negative price reaction after Democratic victories in presidential elections. I also establish that the difference in the equity premium is significant only in the first year of the presidential cycle and that there is a negative equity premium in the fourth year of the cycle when the incumbent Republican loses the election. Moreover, the market reaction to changes in the likelihood of a candidate winning the election is significantly different for Republican and Democratic candidates. The evidence is consistent with a risk explanation and policy uncertainty. Finally, I explore several specifications for a presidential factor (P-factor) that improves on the CAPM and Fama-French 3-factor model for different test assets. The second essay considers the effect of different measures of corporate taxes on stock returns. The results support the partisan politics cycle effect on equity returns. A high minus low (Hi-Lo) portfolio sorted by (Total Corporate Taxes/Total Assets) has an annual return of +3.8% during Republican presidential terms and -6.3% for Democratic terms. Similarly, a high minus low portfolio sorted by (Marginal Tax Rate) has an annual return of +12.7% during Republican presidential terms and -6.4% for Democratic terms. Investors partially anticipate these results during the election period, i.e., increases in the probability of the Democratic candidate being elected are associated with negative returns for the (Hi-Lo) portfolio, which are significant for the 2016 election. The evidence is consistent with a cash-flow based explanation, in contrast with a risk-based explanation. The third essay studies the effect of partisan politics on stock returns in Latin America. The results are partially consistent with previous literature. There is a negative market reaction when left-wing parties win presidential elections. In contrast, the observed democratic premium in the U.S. is not observed in the sample of Latin American countries. Firms have higher returns during periods when the president is from a Centrist party. Moreover, the Christian-Secular dimension is analyzed, firms have significantly higher returns during periods when the president is from a Christian party and the market reaction is higher the day after the candidate from the Christian party wins. Results are consistent with Christian party led governments providing a low-risk and high profitability environment and stock market underreaction. | en_US |
dc.language.iso | en | en_US |
dc.title | THREE ESSAYS ON PARTISAN POLITICS AND STOCK RETURNS | en_US |
dc.type | Thesis | en_US |
dc.contributor.department | Business Administration | en_US |
dc.description.degreetype | Dissertation | en_US |
dc.description.degree | Doctor of Philosophy (PhD) | en_US |
Appears in Collections: | Open Access Dissertations and Theses |
Files in This Item:
File | Description | Size | Format | |
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Mella-Barahona_Javier_A_2019July_PHD.pdf | 1.96 MB | Adobe PDF | View/Open |
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