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Economic Research-Ekonomska Istraživanja
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Is presidential popularity a threat or
encouragement for investors?
Chi-Wei Su, Xi Yuan, Muhammad Umar & Tsangyao Chang
To cite this article: Chi-Wei Su, Xi Yuan, Muhammad Umar & Tsangyao Chang (2022): Is
presidential popularity a threat or encouragement for investors?, Economic Research-Ekonomska
Istraživanja, DOI: 10.1080/1331677X.2022.2129409
To link to this article: https://doi.org/10.1080/1331677X.2022.2129409
© 2022 The Author(s). Published by Informa
UK Limited, trading as Taylor & Francis
Group.
Published online: 07 Oct 2022.
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Is presidential popularity a threat or encouragement
for investors?
Chi-Wei Su
a
, Xi Yuan
a
, Muhammad Umar
a
and Tsangyao Chang
b
a
School of Economics, Qingdao University, Qingdao, China;
b
Department of Finance, Feng Chia
University, Taichung, Taiwan
ABSTRACT
The economic situation of the post-epidemic is facing huge
downward risks, and the government actively introduces stimulus
measures to improve the current economic situation. In this crisis,
the president’s role in asset price gradually deepened. Hence, we
utilise a wavelet-based quantile-on-quantile approach to uncover
the complex and unstable relationships between presidential
popularity and the currency performance of asset price. We find
the significant negative impact of the government popularity on
the stock market and oil prices, especially in the medium quantile.
This suggests that political stalemates will not always be suitable
for financial markets. Instead, this will hinder the investment
because it expresses the uncertainty of the direction. On the con-
trary, the U.S. dollar presents a highly positive relationship with
the government popularity. Investors can avoid the trust risk of
the president through the adjustment of the asset portfolio. The
result is consistent with the asset pricing model, suggesting that
investor sentiments significantly influence the performance of
assets. Meanwhile, the duration of impacts caused by short-term
shock will eventually be repaired for a long time. The approval
ratings will harm the investor sentiment in the short term, but
the market will digest this over time.
ARTICLE HISTORY
Received 12 February 2022
Accepted 20 September 2022
KEYWORDS
Political sentiment; financial
market; assets prices;
presidential approval rating;
quantile-on-quan-
tile; wavelet
JEL CODES
D14; D72; G11
1. Introduction
Political events may be the most difficult to predict in many factors that may affect
market performance, but they often significantly impact investment decisions (Chen
et al., 2010; Awais et al., 2016). Like any other form of market risk, political risk has
the potential to influence the performance of individual securities and then quickly
spreads to a broad market. Political actions like regulations and laws have an effect
on companies, and sudden policy shifts can disrupt a company’s ability to execute
strategy and deliver products or services (Castells & Trillas, 2013; Misman et al.,
2020). This can affect company performance and profitability, and the effects can be
CONTACT Xi Yuan yuanshituanzi@163.com
ß2022 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.
This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/
licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is
properly cited.
ECONOMIC RESEARCH-EKONOMSKA ISTRAŽIVANJA
https://doi.org/10.1080/1331677X.2022.2129409
negative or positive based on the different policies. Due to the direction of the presi-
dent’s appointment’s economic policy and interest rate, these actions have also
impacted stock markets (Al-Thaqeb & Algharabali, 2019). Political risk could cause a
company’s share price to decline significantly for equity markets. For fixed-income
markets, political trends will also cause shock to the corporate and government
bonds. The decline in performance or profitability caused by political risks may make
the company unable to pay debt obligations, thereby causing breach of contract. This
will lead to the deterioration of investor sentiment, affecting the expectations of the
overspeaking market prospects. At the same time, the government’s unwelcome or
controversial (the changes of presidential approval rating) may cause broader political
instability or change. This will cause concerns among investors and lead to a broader
market drop. The government’s popularity will affect the financial market (Montone,
2022). The stock price reflects the consensus of investors’political sentiments, which
is shown as the expectation of the success or failure of government economic policies.
Hence, asset prices are generally suspected of political instability. A comprehensive
analysis of the relationship between the presidential approval rating and assets will
help consider the role in predicting asset return.
Many issues will affect approval ratings, including national security and terrorism,
climate change, and many social problems (Niederjohn et al., 2016). Despite this, the
president’s economic policy is still necessary or even dominant to voters’final deci-
sion. Regardless of the president, the current authority may be blamed on the current
economic situation. Significantly, the economy is ruled by an elected president, who
faces a new election in the last period (Nadeau & Lewis-Beck, 2001). Despite further
election victory, the changes in presidential political choices (especially in developing
and implementing economic policies) will result in the flow of capital (Goodell &
V€
ah€
amaa, 2013). The default of the election commitment is a fatal blow to the ‘public
investment ability’, which is critical to stimulating economic growth (Sauer &
M
esz
aros, 2017). In 2020, a sudden coronavirus disease (COVID-19) pandemic
unprecedentedly impacted the global economy. The most severe public health disaster
in the past 100 years is rapidly evolving into a worldwide economic crisis. The accom-
panying political and social fragility continues to heat, exacerbating the government’s
dispute (Hilhorst & Mena, 2021). Double impact of restrictive factors (blockade) and
epidemic protection measures, companies and individual consumers have postponed
consumption and investment plans. Economic activities that continue to cool down
are expected to increase poverty, income gap and social dissatisfaction. This will also
harm the government’s support rate. During the COVID-19, all countries have
adopted loose policies to provide adequate support for financial systems and maxi-
mise the probability of retention power. Hence, political sentiment and economic per-
formance appear to be interrelated. Although it has been viewed as a problem in
developing nations, the past few years (Brexit, Italy’s constitutional referendum) have
demonstrated that political risk is crucial for developed economies.
As the world’s largest economy, the U.S. accounts for 24.8% of global gross domes-
tic product (GDP), and its financial market is considered the world’s most advanced
market. Regardless of its political or economic influence, it will spread to countries
and affect the global pattern. Its financial sector is also the largest and most
2 C.-W. SU ET AL.
international ministerial globally. Therefore, we choose the U.S. to study the influence
of political sentiment on asset price. On the one hand, the instability of the approval
rating will impact financial markets. In January 2022, the IBD/TIPP Poll
1
result finds
Biden’s approval rating fell nine-tenths of a point to 49.2 over the past month. The
approval rating has slipped for handling the pandemic, and the rising inflation con-
cerns also hurt the presidential approval. Under the persistence of the epidemic, the
circumstances of economic uncertainty make the investment environment conserva-
tive (Rane et al., 2021; Su et al., 2022b). A rise in the 10-year Treasury yield to levels
last seen in January 2020 is pressuring tech stock valuations as the Federal Reserve
continues to surprise the stock market. On the other hand, as the stock market falls,
investors (those with at least $10,000 in household-owned mutual funds or equities)
support cooling down. Investors in the stock market may rethink their support, espe-
cially the technical department’s support, particularly the tech sector. Now 49% of
investors give Biden positive marks, while 46% disapprove of his performance. That’s
down from 60%-33% in December and even trails November’s 49%-43% support in
2021. What is the relationship between presidential approval and the investors? Has
that relationship changed over the years? This article tackles these questions by
reviewing historical presidential approval poll data to evaluate political sentiment and
disagreement among U.S. electors.
The following aspects mainly reflect the novelty and contributions of this paper.
Firstly, the financial channel of political risks according to which any change in the
presidential popularity will impact the political sentiment of investors, further
increase the market volatility and affect the assets prices (Addoum & Kumar, 2016;
Gupta et al., 2021). However, this effect may change in the scales. From Figure 1,it
can be seen that when the presidential approval rating is between 35% and 50%, the
stock performance is best, followed by 50% to 65% in the U.S. Surprisingly, the aver-
age S&P 500 market returns have been lower when presidential approval ratings have
been moderately above 65% than when they are below 50%. This usually corresponds
Figure 1. Market returns of president approval.
Note: S&P 500 denotes average S&P 500 market returns. Probability expresses the probability in the survey.
Source: PMFA, Gallup, Morningstar.
ECONOMIC RESEARCH-EKONOMSKA ISTRAŽIVANJA 3
to the risk of tragedy or promotion (Maqbool et al., 2018). For example, when the
presidential approval rating is too high, investors may be tense because they can
afford to pursue ideologically oriented policies (Frey & Schneider, 1978). This will
increase the possibility of significant changes in U.S. economic policies. While during
extreme opposition (35% or less), the stock market will be hit hard. This is often
comparable to the economic recession or war - both represent a crucial uncertain
source of investors. These periods are often relatively short, only 6% of the sur-
vey period.
Therefore, as a response to this change, this research comprehensively investigates
the impacts of presidential approval ratings on different asset price levels. The results
are supported by the asset pricing model, which indicates sentiment is an essential
factor in the investment assets. Secondly, few studies focus on the government popu-
larity in different markets. We try to investigate how differently the assets react to
the political events further re-examine the role of expectations about the president for
investment behaviour. By revealing the impact of explaining variables on dependent
variables at conditional quantiles, the quantile-on-quantile (QQ) approach can effect-
ively avoid restrictive hypothesis of parameters, compensating for the defects of the
traditional quantile regression, which ignores the status of the explanatory variable.
Against this backdrop, the wavelet-based QQ method is chosen to dynamically evalu-
ate the response of the asset price to presidential popularity in different terms; this
method can compare the stock market, U.S. dollars and oil market to fill the gap.
Assessing political power at asset prices will guide inventors to disperse risks through
investment portfolios. Meanwhile, the results of different periods can provide diver-
sity for different types of investors. Sentiments play an essential role in investment
and even decide the short-term market trend, but it will not change the law of value
decision price and will not change the long-term operation of the market. Thereby,
short-term investors can turn to more stable assets (such as U.S. dollars), while long-
term investors can seize short-term freshers for investment deployment to obtain
long-term profits.
The remainder of the paper is organised as follows. Section 2 provides an overview
of the previous empirical literature. The theoretical model of this analysis is then pre-
sented in Section 3.Section 4 proposes the empirical methodology, while Section 5
includes the data sources. Section 6 then discusses the practical aspects of the study.
Finally, Section 7 derives the main conclusions.
2. Literature review
Many studies have been devoted to examining the relationship between the political
party from a comparative perspective (Brunell, 2005; Pastor & Veronesi, 2020).
Existing literature provides evidence that different industries may have differential
exposures to presidential policies and government spending (Li & Born, 2006; Belo
et al., 2013), resulting in predictable variations in industry portfolio returns across
political cycles. Chuang and Wang (2009) examine the effects of political alternating
in the developed stock market and find the political alternating with an inverse stock
return relationship. The difference in political parties will lead to uncertain economic
4 C.-W. SU ET AL.
policies (Sparrow & Turner, 2001), so investors will tend to hold conservative assets
(Su et al., 2022b), such as the U.S. dollar rather than stocks. Baker et al. (2014)
emphasise the impact of the polarisation of politics on the process of policy formula-
tion and choices. Li and Born (2006) examine the presidential election uncertainty
and stock returns in the U.S. market and claim that there is substantial evidence of
the impact of political results on the business cycle and stock markets. Also, Abidin
et al. (2010) conclude a political cycle effect in the New Zealand stock market, and
the stock returns are higher under the National party than the Labour party.
Wisniewski and Lambe (2015) examine that shocks to the policy uncertainty notably
increase the prices of credit protection. Wisniewski (2016) examines whether there is
an association between the orientation of the political executive or the phase of the
electoral cycle with movements of the stock market index. Montone (2022) finds that
the difference in asset returns between democratic and republican administrations is
driven by political disagreement.
Meanwhile, the president popularity as a political standard is also an essential
determinant to the reaction of the market (especially the reflection in investor senti-
ments) to the government. Jensen and Schmith (2005) argues that stock market
responses to political events and find political events that are expected to have a
negative impact on the economy and specific firms lead to decreases in stock market
returns. Kim et al. (2012) suggest that local stock performance is more remarkable
when a state’s leading politicians are more closely affiliated with the ruling (presiden-
tial) party. Meanwhile, the expectation of economic and market volatility exhibits dif-
ferent patterns regarding direction and timing to presidential job approval ratings
(Chong et al., 2011). Prechter et al. (2012) analyse the U.S. presidential election bids
and find a positive and significant relationship between the incumbent’s vote rates
and the changes of stocks. Fauvelle-Aymar and Stegmaier (2013) demonstrate that a
rapid fall in the stock market reduces president approval, while a sharp acceleration
in the index growth boosts U.S. presidential approval. While Green and Schuler
(2015) evidence that the stock market tend to react more negatively as presidential
popularity increases. Addoum and Kumar (2016) focus on the political sentiment to
investigate that the changes in the political climate generate systematic will shift in
the portfolio composition of investors. Wisniewski (2016) demonstrates that investors’
gains and expectations about the future are closely related to the government popu-
larity and likelihood of re-election. Ostrom et al. (2018) advocate the economy, ter-
rorism and the war in Iraq powerfully influence Bush’s approval rating. Gupta et al.
(2021) highlight that presidential approval ratings help predict stock return and vola-
tility. Small and Eisinger (2020) posit that the relationship between presidential
approval and a strong economy has changed over the years. Using data on job
approval ratings of governors, U.S. senators, and the president, Joo et al. (2020) find
investors’political sentiment is essential in determining stock returns. Bonaparte
(2021) shows that the stock market pricing the presidential margin of victory in a
nonlinear concave fashion, so the president’s confidence will affect the stock market
and is a crucial exogenous determinant to consider. Chen et al. (2021) construct a
monthly Presidential Economic Approval Rating (PEAR) index by averaging ratings
on the president’s handling of the economy across various national polls. And they
ECONOMIC RESEARCH-EKONOMSKA ISTRAŽIVANJA 5
find stocks with positive PEAR betas experience higher returns when the presidential
approval rating improves. Liu and Shaliastovich (2022) measure the correlation
between U.S. government approval ratings and the dollar. They find that policy
approval tends to increase at times of high policy-related growth and low policy-
related uncertainty, which are the times of a strong dollar and low dollar risk
premium. Montone (2022) finds that considerable net disapproval over the U.S. presi-
dent’s job is followed by low stock returns, especially in times of high political uncer-
tainty and low market-wide sentiment.
The current research mainly focuses on discussing the feasibility of the president
support to predict the stock market (Gupta et al., 2021; Joo et al., 2020). Given differ-
ent attitudes among investors to polite parties, the changes in investor sentiments will
show a differentiation trend in asset prices. The spread of the epidemic and the soar-
ing inflation exacerbate negative emotions. In the context of the Federal Reserve
System (Fed) tightening the policy-fighting inflation, the S&P 500 index fell nearly
9% since January 2022. And the stock continued to fall further hit Biden’s approval,
which was sluggish. However, the opposite is the continuous high oil price and the
U.S. dollar index. Considering the complexity of investment, there is a need to quan-
tify the difference in assets from the presidential approval. This helps investors make
better investment decisions depending on the government’s popularity and disperse
risk through different portfolios. Last, in terms of methodology, past methods often
ignore the impact of presidential prevalence on assets at different levels, so the results
are static and biased. This study adds a new dimension by the wavelet-based QQ
method to shed light on the dynamic relationship. This approach is first applied to
connect the government popularity and assets to the best of our knowledge. The
impact of the approval in different quantiles can be more precise and more intuitive
for investors. This will motivate investors to develop more dynamic investment strat-
egies according to changes.
3. Intertemporal capital asset pricing model
This paper builds on the intertemporal capital asset pricing model (ICAPM), created
by Merton (1973), to explore the interaction between investor sentiment changes
against political events and asset prices. We assume that three investors in the finan-
cial market constitute a trading behaviour: rational investors, feedback traders, and
sentiment-driven investors (Chau et al., 2016). Firstly, the demand of assets required
(Qt) by the rational investors is shown as:
Qt¼Et1ðAtÞx
hr2(1)
where Et1ðAtÞis a conditional expectation of the assets (A) given the information at
period t-1, xis the risk-free asset, hstands for the risk-aversion coefficient, and r2
denotes the variance. The rational investor is risk-averse; it means a positive value of h:
Next, feedback traders will be integrated into the model. The amount of assets
held by them (Ft), which depends on the previous period’s return (At1), is as follow:
6 C.-W. SU ET AL.
Ft¼cAt1(2)
where c>0 for the case of positive feedback, it means the trend of low-cost buy.
We consider another kind of investor: sentiment-driven investors. The percentage
of assets held by this group is represented as St, shown as:
St¼qðDPSt1Þ(3)
where DPSt1means an indicator of changes in political sentiment. qis the sensitivity
of their demand to sentiment changes.
Consider all hold shares of groups in equilibrium, it means QtþFtþSt¼1, we
can get:
Et1ðAtÞ¼xþhr2
tcðhr2
tÞAt1qðhr2
tÞDPSt1(4)
Equation (4) can further be re-parameterised and expressed in a simplified form as
follows:
At¼xþhr2
tþða0þa1r2
tÞAt1þbr2
tDPSt1þet(5)
In Equation (5),At¼Et1ðAtÞþet,a1¼ch,b¼qh:According to Equations
(1) and (2), it means a1is negative. a0accounts for the autocorrelation caused by
non-synchronous trading or market inefficiencies. In the model, the impact of polit-
ical sentiment transfer through investors behaviour to asset prices. The coefficient of
DPSt1is br2
t, which depends on b:If q<0, it means this group of investors con-
siders sentiment as a contrarian market timing tool. Investors may lower their
demand for assets following the uncertainty of the increase in political fluctuations.
Political sentiment leads to a decline in asset prices. However, investors’political sen-
timents are improved if the policy promulgation is conducive to the financial market
(q>0), and the expected share of assets will also increase. Accordingly, the theoret-
ical model suggests that political sentiment exert an indispensable influence on the
asset price. However, this direction of transmission is uncertain.
4. Methodology
4.1. Wavelet analysis
We apply the wavelet transform to evaluate the impact of president popularity (PAR)
on asset prices (AP) in different terms. Wavelet analysis combines both the time and
frequency domains (Khan et al., 2022). We aim to employ the wavelet method to
decompose the raw information into different investor horizons. The discrete wavelet
transform (DWT) of the function f(t) follows as:
ft
ðÞ¼Pqsp,qdp,qt
ðÞþPqdp,qup,qt
ðÞþPqdp1,qup1,qt
ðÞ
...þPqd1,qu1,qt
ðÞ (6)
where pis the decomposition level, and qis the translation parameter. dp,qand
ECONOMIC RESEARCH-EKONOMSKA ISTRAŽIVANJA 7
up,qdenote the father and mother wavelets constitute the basic function that define
the sequence of coefficients. sp,qrepresents the coefficient written into sp,q¼
ÐfðtÞdp,qt
ðÞ
dt, while dp,qstands for dp,q¼ÐfðtÞup,qt
ðÞ
dt:
Then, we apply the maximal overlap discrete wavelet transform (MODWT) sug-
gested by Percival and Mofjeld (1997) to reduce the raw information into different
timescales. On simplifying Equation (6), we get
ft
ðÞ¼D1t
ðÞþ...þDpt
ðÞþSpt
ðÞ (7)
The obtained father wavelet Sp¼Pqsp,qdp,qðtÞoffers a smooth form of f(t), which
observes secular changes of low frequency information, whereas the mother wavelet
Dp¼Pqdp,qup,qðtÞexamines high frequency signals that vary dramatically.
4.2. Quantile-on-quantile method
The quantile-on-quantile method is a new non-parameter quantile method proposed
by Sim and Zhou (2015), which is used to verify the the influence of the argument
for the conditional distribution of variables. The locally weighted linear regression
proposed by Stone (1977) and Cleveland (1979) can estimate local effects of the
explaining variable in given quantiles on the dependent variable, which can effectively
solves the curse of dimensionality in the pure non-parameter model. The combin-
ation of these two methods is helpful to to provide solutions for the formation of the
correlative relationship between variables. Compared to the results obtained by the
estimation methods such as ordinary least squares (OLS) or standard quantile regres-
sion (QR), the key advantage of the quantile-on-quantile regression (QQR) is that it
can simulate the relationship between economic variables in different levels. For
example, there is a big difference in financial effect from presidential popularity, due
to structural breaks (Gupta et al., 2021). OLS can only estimate the conditional mean
impact of president popularity on asset prices. The estimate of QR further decom-
poses the impact of the mean impact into the conditional quantile, while QQR has
effectively expanded the results by clarifying the impact of president popularity in dif-
ferent quantiles on the assets. Specifically, the PAR is moulded as an explaining vari-
able because it provides information about the presidential popularity, then AP is the
dependent variable, including the financial market information. Therefore, even
though it is based on the QR paradigm, the QQ model provides a complete informa-
tion on the impact of the presidential popularity on assets in their respective distribu-
tions. In addition, for the non-normal characteristics of economic variables, which is
difficult to satisfy the basic hypothesis of the mean reversion model, QQ method is a
valid tool to deal with the non-normal data. The equation is constructed as follows:
APt¼bhPARt
ðÞþlth(8)
where APtstands for the asset price at period t.his hth quantile and ltrepresents
residual term with a zero h-quantile. When the squantile of the PAR is defined as
PARs, we can extend the unknown parameter bh
ðÞ by taking the first-order Taylor
expansion, leading to
8 C.-W. SU ET AL.
bhPARt
ðÞ
bhPARs
ðÞ
þbh'PARs
ðÞ
PARtPARs
ðÞ (9)
where bhPARt
ðÞand bh'PARt
ðÞare a function of hand PARs, which is expressed by
s:Hence, bhPARt
ðÞand bh'PARt
ðÞare also the function of hand s:We regard
PARtPARsas uncertainty. Therefore, bhPARs
ðÞ
and bh'PARs
ðÞ
can be rewritten as
b0h,s
ðÞ
and b1h,s
ðÞ
:Thus, we can obtain:
bhPARt
ðÞb0h,s
ðÞ
þb1h,s
ðÞ
PARtPARs
ðÞ (10)
Combining Equations (8) and (10), we obtain
APt¼e
b0h,s
ðÞ
þb1h,s
ðÞ
PARtPARs
ðÞ
þlth(11)
Part (*) represents the h-quantile of PAR. We can get the association between APt
and PARtin different positions based on b0and b1, the coefficients of them rely on
hand s:Equation (11) claims to replace PARtand PARswith their counterparts
d
PARtand d
PARs
:To estimate b0and b1, we solve for:
min
b0,b1X
N
i¼1
qh APtb0b1d
PARtd
PARs
hi
KFnd
PARt
s
h
!
(12)
the qh l
ðÞ
is to give the quantile loss function, qh l
ðÞ
¼lðhIl<0
ðÞ
Þ, and Irepre-
sents the usual indicator function. K
ðÞ is employed to weight the observations of
d
PARsbased on a Gaussian kernel, whose bandwidth parameter is h:These weights
are inversely correlated with the distribution between d
PARtand d
PARs, so:
FnPARt1
ðÞ
¼1
nX
n
k¼1
I PARk<PARt1
ðÞ (13)
The constructed model allows us to conduct a complex non-linear analysis of how
selected s-quantiles of PAR impact h-quantiles of AP based on their corresponding
distributions. Significantly, the bandwidth selection focuses on non-parameter estima-
tion methods, which can balance deviation and variance. Therefore, we apply the
bandwidth of e¼0.05 in the study (Liu et al., 2021; Wang et al., 2022b).
5. Data
To address the role of president popularity on the assets price (AP), this article selects
the data, which consists of the presidential approval ratings (PAR), S&P 500 stock price
index (S&P 500), U.S. Dollar Index (USDX) and Oil Price (OP) during 1973:M1-
2022:M1. The president’s popularity is measured by Gallup’s U.S. monthly approval
rating polls (Chen et al., 2021; Montone, 2022). PAR
2
is given to a politician based on
responses to a survey, which is approximately 1,500 adults are asked whether they
ECONOMIC RESEARCH-EKONOMSKA ISTRAŽIVANJA 9
approve or disapprove for the president during their term. In this regard, the question
that is asked is: Do you approve or disapprove of the way [enter President name] is
handling his job as president? The answer can be positive, negative, or neutral.
Therefore, PAR is generally accepted by statisticians as a statistically valid indicator of
the comparative changes in the popular U.S. mood regarding a president. PAR should
be relatively stable in the short term to follow a cyclical pattern over the presidential
term (Berlemann & Enkelmann, 2014). Instead, sentiment is usually volatilised in
nature (Baker & Wurgler, 2007). Therefore, the monthly changes of PAR can highlight
the reaction of market (fluctuations in asset prices) to the president performance. The
data of S&P 500 and OP are derived from Wind Database and USDX is taken from
Yahoo Finance. As the world’s largest economy, the uncertainty of the election and the
president support rating become an important force affecting the U.S. economy
(Ostrom et al., 2018). The popularity of the president will affect the expectation of eco-
nomic agents to the future economy, which in turn interfere the choice of assets. In
order to measure the presidential effect of assets, we choose the representative U.S. dol-
lars, oil and stock markets. Meanwhile, the selection of the period depends on the data
availability. The time span is not only in the period of several presidential successions,
but also involves multiple conflicts (such as financial crisis and trade disputes), and the
impact of coronavirus disease from COVID-19.
Table 1 reports the basic descriptive statistics. With regard to the maximum and min-
imum, we can see a large range of stock market. Because stocks are affected by economic,
policies, investor sentiments and so on. Any changes to market expectations will affect
stock prices. Therefore, stocks belong to risky assets and often exhibit more dramatic fluc-
tuations. During the economic turmoil periods, many foreign investors tend to flee
towards what is called safe haven assets, such as the dollar (Liao et al., 2018). Despite the
high inflation and the weakening of the epidemic, the dollar still plays an important role
in current global trade and financial flow. The international reserve status of U.S. dollar
assets is relatively stable; the range of it is small. The skewness values are all positive, it
means that the series are right-skewed. Since the kurtosis parameter values of PAR, S&P
500 and USDX are greater than 3, they satisfy leptokurtic distribution
3
while OP follows
the leptokurtic distribution. It is worth noting that the kurtosis value of USDX is signifi-
cantly greater than other sequences, indicating that the fluctuations of the dollar market
are more intense than other assets. Simultaneously, the Jarque-Bera test results of the ser-
ies all strongly reject the normality hypothesis at a 1% level.
The coefficient results of PAR and AP illustrate that the presidential popularity is
significantly related to all assets at a 1% level, as shown in Table 2. Among them, the
population of the president has a negative impact on the stock and oil market. The
negative coefficient of OP is stronger than S&P 500. Only randomly and unpredictable
Table 1. Summary statistics.
Mean Maximum Minimum Std. Dev Skewness Kurtosis Jarque-Bera
PAR 50.129 89.000 24.000 11.372 0.405 3.319 18.606
S&P 500 1399.337 4766.180 360.280 951.738 1.032 3.774 119.251
USDX 96.271 160.410 71.800 14.402 1.387 5.714 369.659
OP 64.771 175.560 18.770 29.892 0.774 2.833 59.482
Note: denote significance level at 1%.
Source: PMFA, Gallup, Morningstar.
10 C.-W. SU ET AL.
information can change future markets, and the president’s popularity reflected in the
APR is foreseeable. All the predictable information about the future is already reflected
in the current stock market (Jakpar et al., 2018;Suetal.,2022c). The demand for oil
and petroleum products has continued to climb with industrialisation (Su et al., 2022a).
Its oil supply is mainly dependent on imports, so the fluctuations in the OP are pri-
marily influenced by edge political risks. Although the U.S. has long proposed energy
independence, as the Shale Oil Revolution has achieved great success, it will help
reduce the dependence on imported oil (Su et al., 2022e). Hence, the president’senergy
policy will have a long-term influence on OP (Akhound et al., 2022;Wangetal.,
2022a). In addition, the positive coefficient can be evidenced in USDX because the U.S.
dollar can be regarded as a hedging asset against uncertainty (Su et al., 2022d). For
example, the 2020 election will be significantly affected by the COVID-19. In June
2020, Trump adhered to the election rally to maximise continuing power. Although the
home order has gradually relaxed, such a large-scale gathering faces a considerable risk
of infection. The Trump Campaign team diagnoses the isolation, and the epidemic is
also covered with a layer of shadows, and PAR has fallen sharply. However, the stock
market has risen against the trend. The reason is that more states in the U.S. are begin-
ning to reopen, the Fed commits to providing more support for economic recovery.
Various business activities began to recover so that U.S. stock markets skyrocketed.
The most significant uncertainty facing future economic trends comes from the U.S.
will evolve the second round of epidemic eruptions and domestic demonstrations. Due
to the low PAR, the prediction of the election results is considered explicit, and the
process of vaccines is also promising. The rise in oil prices is also pronounced due to
the increase in oil demand from work resumption. However, the U.S. economic situ-
ation has improved but is still expected to be very slow. Drops of inflation and eco-
nomic activities are related to the decrease in endurance to reduce the difficulties of
external supply chain links, leading to the weakening of economic activities. In the face
of weak economic recovery and pressure, the U.S. government brews new fiscal stimu-
lation. Trump’s nearest polls continued to backwards Biden; in order to reverse the
situation, he plans to announce an infrastructure proposal (the program proposes to
invest $1 trillion in infrastructure construction in the next ten years). However, the
bill’s future is unknown because it requires the support of the House Democrats. The
future uncertainty and weak economy make risk sentiments, and the U.S. dollar will
continue to sell sharply.
6. Empirical findings
The QQ approach used in this study provides a comprehensive picture of the
dependence structure and knows how the impacts of the president’s popularity and
Table 2. Correlation results of PAR and AP.
PAR Correlation t-Value p-Value
S&P 500 0.120 2.918 0.004
USDX 0.323 8.262 0.000
OP 0.398 10.517 0.000
Note: denote significance level at 1%.
Source: PMFA, Gallup, Morningstar.
ECONOMIC RESEARCH-EKONOMSKA ISTRAŽIVANJA 11
asset price are related to different quantiles. Firstly, we explore the result of the quan-
tile regression about the interaction between PAR and the stock market, which is
plotted in Figure 2. This reveals that the response of the S&P 500 to PAR is consist-
ently positive. However, the negative effect can be observed focussing on the upper
quantile. It demonstrates the decline in the stock index accompanied by the rise of
the president’s support. While PAR is too high, investors will be tense because this
increases the possibility of significant changes in economic policies (McAvoy, 2006).
The investors will gradually digest the impact to reduce the coefficient over time.
Economic stagnation and the first oil crisis have caused the economic crisis in 1973;
Ford’s high support rate in September 1974. However, Ford takes the opposite steps
with Nixon’s (last president) new economic policy, such as tax cuts tax subsidies to
stimulate investment and production. However, it causes the market’s panic; there are
no stock market stops. Subsequently, Cater, the successor of Ford, tries to take a
more significant tax reduction to solve the inflation crisis. Although Carter succeeds
in ultra-high support (the support rate has been more than 60% for seven months
since January 1977), more radical measures have no actual excitement. The fall in the
stock market is still inevitable. The failure of economic policies causes the U.S. to fall
into the deadlock of economic stagnation.
As evidenced in Figure 3, the scale of the coloured bar indicates the coefficients
between PAR and the stock market based on QQ estimates. Dark blue and dark red
indicate the lowest and highest values of the coefficients, respectively. As the result of
raw data shown in Figure 3(A), the negative response of S&P 500 to PAR can appear
in the medium quantile of PAR (0.35-0.55), with a lower quantile of S&P 500 (0.05-
0.25). The lowest coefficient of 0.02 observed in the medium quantile implies that
the stock market is often not good when the president’s support is in an intermediate
state. In a political stalemate, the unstable ruling party often causes uncertainty in
Figure 2. Quantile regression of S&P 500.
Note: quantile regression is denoted by the black line and QQ estimates are represented by the red line.
Source: PMFA, Gallup, Morningstar.
12 C.-W. SU ET AL.
economic policies. Unclear business environments have triggered investor sentiment
and S&P 500 falls. For example, the political stalemate in the middle-term election of
2010 has not brought advantage to the stock market. Since the U.S. is currently expe-
riencing a difficult recovery phase after the financial crisis, political stalemates may
lead to the implementation of policies to be more complex and even stop (Caluwaerts
& Reuchamps, 2015). This is undoubtedly not conducive to the stock market and
economic recovery. Therefore, from January to August 2010, with the stalemate of
the Obama government approval rating, the stock market is sluggish. Meanwhile,
positive impact can also show in lower quantile of PAR (0.05-0.15), while upper
quantile of S&P 500 (0.85-0.95). The president’s support rate is closely related to the
economic situation, and the government often adopts effective policies to improve
economic conditions. As the economic fundamentals improve, the stock market will
also be good. In January 2021, Biden was committed to promoting a large-scale eco-
nomic stimulus plan financial support for families, enterprises and governments. The
market considers that this is expected to stimulate consumption and investment. The
stock market has also made a positive response; S&P 500 (closed at 3851.85 points)
has risen to a new high and refreshed the record of January 8. Figure 3(B–D)
Figure 3. The QQ estimate of PAR and S&P 500.
Source: PMFA, Gallup, Morningstar.
ECONOMIC RESEARCH-EKONOMSKA ISTRAŽIVANJA 13
highlights the decomposed data outcomes. The negative impact of political stalemates
has been verified again in the short term in the medium quantile of PAR (0.35-0.45;
0.55-0.65). The panic sentiment of political events is often difficult to digest in the
short term, so that the market reaction will become more intense. Risky assets will
tend to be more vulnerable to sentiment changes, such as stocks (Baker & Wurgler,
2007). Hence, political sentiments have the most severe short-term response to the
stock market, and the coefficient is 0.4. Henceforth, PAR also has affected S&P 500
in the medium quantile (0.55-0.65) in the middle term. First, it is evident that the
range of influence is reduced (embodied in the range of quantile). Second, the influ-
ence is reduced (the maximum coefficient is 0.08). Although there are fluctuations
in the repeatedly oscillated market, there are no pessimistic expectations in the
medium and long term. The negative impact of PAR will be gradually released. The
maximum coefficient is 4 103in the long term, demonstrating the negative senti-
ment almost completely disappears over time. In 2020, the spread of COVID-19 and
the freezing point in Sino-U.S. relations made the U.S. stock market unprecedented
experience four times fuse. However, the U.S. is still the largest economy globally,
and its fundamentals of the economy have not been destroyed. The enormous finan-
cial system and leading technology innovation strength make people optimistic about
future expectations (Pirtea et al., 2019; Su et al., 2022f). Policy effects will appear
long-term and gradually guide the market’s stability. Investors’sentiment will resume
calm to the presidential regime.
Figure 4 expresses the impact of PAR on USDX of quantile regression. It demon-
strates that the relationship is consistently positive across all the quantiles. It is worth
noting that influencing coefficients gradually decrease over time. This can be
Figure 4. Quantile regression of USDX.
Source: PMFA, Gallup, Morningstar.
14 C.-W. SU ET AL.
interpreted as economic policy uncertainty and the deepening of political conflicts,
and the dollar is gradually weakened. During the Trump period, the rising interest
rate expectations and the intensification of trade conflicts appeared simultaneously,
resulting in the dangerous resonance of monetary policy and trade policies between
countries, so the dollar trend is weak. The short-term uplink will encounter resistance
unless the U.S. continues to announce economic data than expected. Hence, the pres-
ident’s foreign policy affects the dollar trend. Protectionist policies have been proven
to weaken the dollar in the long term (Sukar & Ahmed, 2019).
Figures 5(A) reports the relationship between the president’s popularity and the
dollar. The PAR positively affects USDX in the lower quantile (0.15-0.25). The most
significant impact (the coefficient is 2) can be observed in the lower quantile, indicat-
ing the greater increase of USDX due to the support rate. Market confidence in the
U.S. government’s ability to deal with economies and diplomacy will have an impact
on the dollar. If the measures taken by the government are positive, the president’s
support rate will rise. The debt size of 2021 has reached 21.019 trillion U.S. dollars,
equivalent to 102.3% of GDP. Public and external debt has an important impact on
the dominance of the U.S. dollar (Wiriadinata, 2018). Therefore, the ruling
Figure 5. The QQ estimate of PAR and USDX.
Source: PMFA, Gallup, Morningstar.
ECONOMIC RESEARCH-EKONOMSKA ISTRAŽIVANJA 15
confidence has caused the political parties to stabilise. This will contribute to the
trend of the dollar. PAR and USDX are mapped to the U.S. economy and political
confidence, so both have positively related characteristics (Liu & Shaliastovich, 2022).
During President Clinton, he conducted tightening fiscal policy to reduce the deficit
and strictly implemented stable and neutral monetary policies to raise more revenue.
The effect of its economic policy has brought the prosperity of the U.S. economy.
Trade policies that actively develop foreign markets help expand trade exports to pro-
mote USDX rising. On the other hand, the alternation of political parties will cause
market panic (Hopkin, 2020). Hedging sentiment makes the emerging and developing
countries’monetary depreciation because investment is turned into more assets that
are considered safer. This can prompt the appreciation of the dollar. Unlike the last
president Clinton, Bush hopes to stimulate the economy through government inter-
vention and increase consumer spending and corporate investment through tax cuts.
The Bush administration’s economic policy will also support trade protectionism in
terms of foreign trade. The U.S. dollar index has dropped to below 90 for trade
protectionism concerns since December 2013. Figure 5(B–D) presents the wavelet
analysis, and the results show that PAR can cause USDX positively in the medium
(0.40-0.50) in the short term. The highest coefficient, which is 6, implies a great
incentive of PAR to USDX. The U.S. dollar index will be affected by short-term fac-
tors, such as the president strategy. The president tends to suppress the dollar more
actively in the speech when the support rating is lowered (such as Trump worries
about the dollar to weaken the competitiveness of the U.S. export product). When
the economic recovery is confident, it does not require a weak dollar as an additional
stimulus for exports (Su et al., 2021a). This will temporarily cause direct pressure on
the U.S. dollar. The impact of the middle term can be observed in the quantile of
(0.55-0.65); however, the impact of PAR is below the short term (the maximum coef-
ficient is 1). From a medium perspective, the impact of the president’s approval rat-
ing on the U.S. dollar index is mainly of market emotional feedback in this stage.
The stable ruling highlights the public’s confidence in the government’s current work.
The most powerful economies in the U.S. have a solid economic strength, and it is
also the world’s first industrial output value. The robust economic pillar maintains
the stability of the U.S. dollar. During the Obama administration, the export promo-
tion strategy is implemented to promote the recovery of manufacturing industries to
solve the financial crisis. This keeps U.S. products leading the global market. This
brings a stable government environment and enables the recovery of the U.S. dollar.
While, in the long run, the impact of political factors on USDX will be further weak-
ened, and its influence coefficient is the lowest (0.5). The capital return rate deter-
mines the direction of international capital, and the global capital transnational flow
process will affect the supply and demand of the corresponding currency. In other
words, USDX’s long-term pricing factors are relative capital returns. Investors tend to
choose the actual interest rate/actual price to define the capital return rate better. The
actual spread depends on the relative monetary policy, inflation sites and even eco-
nomic growth between economies. These policies are generally relatively stable, and
they mainly rely on party differences, so the long-term impact of PAR on the market
is not significant.
16 C.-W. SU ET AL.
The validity of the regression results is examined in Figure 6(a and b). It demon-
strates that oil price has received suppression as the approval ratings rise.
Correspondingly, the positive impacts of PAR on OP are exhibited in the medium
and long term. The size of the influence can be strong in short term, which proves
that exaggerated political beliefs may impact the oil price. A reasonable explanation is
that a high support rate is usually related to unrealistic expectations (Jenkins-Smith
et al., 2005), which results in the rapid decline in OP. The influence coefficient is
minimal, especially in the long term. With the market’s calmness, OP will follow
recovery in the long run.
The quantile regression of PAR and OP is presented in Figure 7(A). Most coeffi-
cients are positive, which means that the presidential approving ratings under differ-
ent levels positively influence oil prices. The steady economic situation often
encourages presidential jobs, while oil demand is closely related to economic activities
(Wang et al., 2021). Therefore, PAR and OP are usually coordinated. In particular,
the coefficients become negative and significant when PAR and OP range in the
quantiles of [0.45, 0.55] and [0.9, 1.0], respectively. Deadlocked presidential support
rating forms a stalemate, which makes energy policies confusing. Uncertainty makes
the possibility of falling in the OP high (Su et al., 2021b). For example, Trump
encourages fossil energy development to have a massive change in global energy pat-
terns. He has publicly promised to open the federal government land for oil and gas
mining. Accompanied by the construction of oil and gas pipeline projects, U.S. shale
oil will be fully relaunched. These will effectively reduce the transportation and con-
sumption cost of fossil energy, and provide further support for domestic energy pro-
duction and consumption (Tao et al., 2022). Therefore, reducing oil prices will
promote industrial production activities (Brown & Y€
ucel, 2002; Hu et al., 2022), and
improve the government’s ruling confidence, which leads to an increase in PAR.
Figure 6. Quantile regression of OP.
Source: PMFA, Gallup, Morningstar.
ECONOMIC RESEARCH-EKONOMSKA ISTRAŽIVANJA 17
Figure 7(B–D) displays the wavelet transform of OP, and the results suggest that PAR
has a negative impact on the OP in the short run in the medium quantile (0.45-0.55).
The coefficient is 4, which means the impact is dramatic and sudden. With political
multi-polarisation, economic globalisation, the development of internationalisation,
competing for oil resources and control of oil markets have become essential causes
of oil market turmoil (Wang et al., 2022c). The rise in OP brought about by political
sentiments is short because the conflict is not sustainable. However, any policies
immediately affecting the central oil supply countries may quickly influence OP.
Obama intends to expand the development of offshore oil and gas fields; the U.S. has
twisted the situation of oil-dependent. In 2011, the crude oil price difference reached
a new high. Although the oil market suffers from hits in the short term, PAR has
decreased, low oil prices are undoubtedly beneficial to U.S. economic recovery.
Therefore, the impact of political sentiment on OP is short-term and dramatic. For
the medium and long term, the critical factors of OP are still in the supply and
demand relationship. The influence of PAR will inevitably weaken (the coefficient in
the medium term is 0.4, while the long term is 0.1). The U.S. energy consumption
accounts for 24% of the world’s total. Economic growth will increase the rise in PAR
Figure 7. The QQ estimate of PAR and OP.
Source: PMFA, Gallup, Morningstar.
18 C.-W. SU ET AL.
and drive crude oil demand, stimulating crude oil prices.On the other hand, the U.S.
economic expectation will also pull up the dollar. The crude oil base pricing unit is
the U.S. dollar/barrel. The dollar’s strength will directly cause up and down fluctua-
tions in crude oil prices, but it will increase PAR. The impact of PAR on the OP will
offset, so the role of government popularity will decrease over time.
7. Conclusion
We employ the QQ method to estimate the overall relationship between PAR and the
asset price on different quantiles. The result shows that the approval of presidential
performance has a significant and negative impact on stock and oil markets, espe-
cially in the medium quantile of PAR. However, the influence of PAR is greater on
USDX than S&P 500 and OP. The reason is that whether the president’s support is
or the value of the dollar, its decisive influencing factors depend on the current eco-
nomic situation. A good situation will promote the satisfaction of presidential work
and bring a safe investment environment to consolidate the status of the dollar.
Therefore, PAR and USDX demonstrate a highly relevant correlation. These results
are in line with the ICAPM to explain political sentiment changes of the investor will
shock asset prices. Meanwhile, the degree of influence will cut down when the rela-
tionship changes from short to long run.
The empirical findings may have policy implications. First, political disagreement
tends to affect asset prices significantly. The public opinion investigation has a signifi-
cant impact on the market atmosphere. Throughout the sample period, the impact of
uncertainty of presidential popularity on market returns has heterogeneity. Specifically,
the government’s popularity has a negative impact on the stock market and oil prices in
most quantiles, and this impact can be more obvious in the state of political stalemates
(in the medium quantile). The uncertainty of this political state will hinder investment
and bring more unclear factors to asset prices. While the U.S. dollar index is more
affected by PAR; most impacts are positive. When making investment decisions, invest-
ors need to fully consider the impact of political uncertainty, and pay attention to fluc-
tuations of presidential popularity, especially when the political stalemates occur. Also,
the results provide a successful investment strategy to circumvent the government trust
risk for rational investors. In short, investors turn funds to more fluid security assets
(such as the dollar) to avoid potential political uncertainty. Second, the government
needs to maintain the stability of the investment environment to get rid of the turmoil
of the asset price brought by the government’s credibility. The uncertainty will also
affect investor sentiment, resulting in the volatility of stock markets and oil prices. In
turn, this will also damage the prevalence of the president. Therefore, the government
should pay attention to basic issues related to investors and investors in macro models,
it can formulate policies through the reaction of the asset market. In addition, govern-
ment departments should maintain the coherence and stability of the policy environ-
ment as much as possible, and reduce the frequency of policy adjustment, which can
facilitate investors and enterprises to establish reasonable expectations and prevent
countermeasures on changes in economic policy.
ECONOMIC RESEARCH-EKONOMSKA ISTRAŽIVANJA 19
Notes
1. The IBD/TIPP Poll is a collaboration between Investor’s Business Daily and
TechnoMetrica to produce a presidential leadership index.
2. The data of PAR is from http://www.presidency.ucsb.edu/data/popularity.php
3. The leptokurtic distribution can be described as having a wider or flatter shape with fatter
tails resulting in a greater chance of extreme positive or negative events. The opposite is a
platykurtic distribution.
Disclosure statement
No potential conflict of interest was reported by the authors.
Funding
This study was supported by the National Office for Philosophy and Social
Sciences (20BJY021).
ORCID
Chi-Wei Su http://orcid.org/0000-0001-9722-8105
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