Political Uncertainty and Asset Prices
Saturday, Jan. 4, 2020 8:00 AM - 10:00 AM (PDT)
- Chair: Stefano Giglio, Yale University
Tax Policy Uncertainty and Asset Prices: Evidence from Dual-class Corporate Bonds in Early 20th Century
AbstractIn the 1900s, U.S. firms issued both taxable and tax-exempt bonds. Investors paid all taxes on income from taxable bonds, but the firm covered taxes on investors' behalf on income from tax-exempt bonds. Using this unique data set for "dual-class" bonds, we derive a novel market-based measure of tax policy uncertainty, and examine its properties during the turbulent period immediately after the introduction of the first federal income taxes. Tax policy uncertainty varies considerably over time, is priced in the cross-section of asset returns, and commands a statistically and economically significant risk premium. We provide novel evidence on the risk premium investors demand for the uncertainty regarding taxes they face on their investment.
Political Uncertainty and Commodity Markets
AbstractWe examine the effects of political uncertainty on commodity markets from both theoretical and empirical points of view. Our theoretical model shows that political uncertainty on the demand (supply) side has a negative (positive) impact on commodity prices and a positive (negative) impact on convenience yields and risk premiums. To test our model, we construct a comprehensive sample of 87 commodities across 12 countries over the 1960-2017 period and elections from 17 commodity demand/supply and trading countries. Consistent with our model predictions, commodity prices decline by 6.4% and convenience yields increase by 1.8% in the quarter leading up to U.S. presidential elections as the proxy for political uncertainty on the demand side. An opposite result is obtained for political uncertainty on the supply side.
- G1 - General Financial Markets