Publication by 2012 DPDF Governing Global Production Fellow Nikhar Gaikwad.
I exploit the sudden and dramatic jolt that Osama Bin Laden’s capture gave to Barack Obama’s 2012 re-election prospects to gauge the relationship between presidential prospects and stock market valuation changes. Using campaign contributions as an indicator of political support, I find that following Bin Laden’s death, firms that had previously supported Democrats registered significant positive returns, whereas firms that had supported Republicans registered significant negative returns. Across the S&P 500, the president’s transformed re-election prospects shifted market capital worth $101 billion over one day and $245 billion over one week. My findings indicate that the relationship between the presidency and firm valuations is associated with patterns of past political support, substantively and significantly important, and more pronounced for the presidency than for Congress.