Does market volatility impact presidential approval?

Abstract

Recently, market volatility has been used as an explanatory variable for presidential job approval. Our research builds on such an approach by first extracting the economic and non-economic components of market volatility using the Eta W (c4cast.com, Inc., 750 E. Walnut St., Pasadena, CA 91101) model, which considers 18 economic factors, far more than the unemployment and inflation factors used in most similar studies. Further, our results suggest that it is not aggregated market volatility but rather disaggregated market volatility that has a causal effect on presidential job approval ratings. In addition, the market's expectation of economic and non-economic market volatility exhibits different patterns, in terms of direction and timing, in their relationship to presidential job approval ratings.

The Political Economy: Political Attitudes and Economic Behavior

“…At the same time, analyses that examine mean levels of political attitudes as a function of economic volatility have generally found a positive relationship between the two. In particular, these studies reveal that increasing volatility in the stock market is associated with increased presidential approval (Schwartz, Hoover, and Schwartz 2008;Chong, Halcoussis, and Phillips 2011). The "basic idea is simply that in times of uncertainty, people act to support the President," akin to a rally round the flag effect (Schwartz et al 2008, 200).…”

Predicting Stock Market Movements in the United States: The Role of Presidential Approval Ratings*

“…Our results show that, standard linear Granger causality test fail to detect any predictability emanating from presidential approval ratings to stock returns. Figure 2 Time-varying Granger causality between realized volatility and presidential approval ratings See notes for Figure 1. [Color figure can be viewed at wileyonlinelibrary.com] 9 The ability of stock market volatility, as measured by the Chicago Board Options Exchange Volatility Index (VIX), in predicting presidential approval ratings has also been confirmed by Schwartz et al (2008) and Chong et al (2011). 10 Giot et al (2010) points out that market participants care not only about the nature of volatility, but also of its level, with all traders making the distinction between good and bad volatilities.…”

“…99The ability of stock market volatility, as measured by the Chicago Board Options Exchange Volatility Index (VIX), in predicting presidential approval ratings has also been confirmed by Schwartz et al (2008) and Chong et al (2011). …”

“…Against this backdrop, the objective of this paper is to add to the above literature, by considering the role of US presidential approval ratings in predicting S&P 500 stock return. As highlighted recently by Chong et al (2011), Berlemann and Enkelmann (2014), Choi et al (2016), and Dickerson (2016), presidential approval ratings are (nonlinear) functions of the state of the economy, as defined by widearray of economic variables. Given that asset prices are functions of the state of the economy as well, movements in the presidential approval rating due to movements in the underlying economy is likely to have an impact on the stock market.…”

Economic policy uncertainty and presidential approval: Evidence from Latin America

“…To the best of our knowledge, this is the first study to use a newspaper-based measure of uncertainty among the literature on economic voting and the determinants of presidential popularity. The few existing studies focussing on this relationship either use stock market volatility [ 32 , 33 ] or GDP growth volatility [ 34 ] as proxies for uncertainty. It is noteworthy that our main result is not explained by proxies for the economic outllok, indicating that there is a difference between the economic uncertainty channel and the more traditional economic outlook channel.…”