Is there really a relationship between the economy and presidential approval ratings?
Stock markets and politics are enduring staples of dinner party conversations but surprisingly little is known about the interaction between the two. Here we present evidence for a robust relationship between a key financial measure—the aggregate Price–Earnings ratio—and surveyed approval of the incumbent president. We argue, following the finance literature, that the price–earnings ratio is a composite measure of investors’ hopes and fears. The partially prospective nature of this ratio enables us to shed new light upon the controversy surrounding how the electorate attends to economic circumstances in judging its presidents.
Source: “Speculating on presidential success: exploring the link between the price–earnings ratio and approval ratings” from JOURNAL OF ECONOMICS AND FINANCE
Join 25K+ readers. Get a free weekly update via email here.