June 7, 2019
This study examines the effects of political uncertainty around US presidential elections on firm risk, expected return, trading activity, and dispersion of investor beliefs. To this end, we utilize information embedded in short-term options and exploit cross-sectional differences in firms’ political features, such as their sensitivity to economic policy uncertainty, their stock returns’ exposure to the presidential party, their geographical political alignment with the presidential party, and their political connectedness through campaign contributions.