Are policy platforms capitalized into equity prices? Evidence from the Bush/Gore 2000 Presidential Election

This paper tests for the capitalization of policy platforms into equity prices using a sample of 70 firms favored under Bush or Gore platforms during the 2000 U.S. Presidential Election. Two sources of daily data during the six months leading up to the election are incorporated: firm-specific equity returns and the probability of a Bush victory as implied by prices from the Iowa Electronic Market. For this group of politically sensitive firms, the daily baseline estimates demonstrate that platforms are capitalized into equity prices: under a Bush administration, relative to a counterfactual Gore administration, Bush-favored firms are worth 3% more and Gore-favored firms are worth 6% less, implying a statistically significant differential return of 9%. Estimates based on weekly returns are even stronger, suggesting a differential return of 16%. The most sensitive sectors include tobacco, worth 13% more under a favorable Bush administration, Microsoft competitors, worth 15% less under an unfavorable Bush administration, and alternative energy companies, worth 16% less under an unfavorable Bush administration.A corresponding analysis of campaign contributions, which allows for heterogeneity in the importance of policy platforms to the firms, supports the baseline estimates.