Political Uncertainty and Sector-Level Volatility: Evidence from U.S. Presidential Elections

Sammanfattning

This thesis examines whether political uncertainty surrounding U.S. presidential elections affects stockmarket volatility unevenly across sectors, with stronger effects in industries that are more exposed togovernment policy and regulation. While previous research has mainly focused on aggregate marketreactions to elections, this study adopts a sector-level perspective and investigates whether regulationsensitive industries experience a stronger volatility response during presidential election periods. Theanalysis is based on monthly realized volatility constructed from daily returns of ten Fama-Frenchindustry portfolios over the period 1992–2024, covering nine U.S. presidential elections. Healthcare,Energy, and Utilities are classified as regulation-sensitive sectors, since their revenues, costs, and longterm profitability are more directly affected by regulatory frameworks and government policy decisions.The empirical analysis uses fixed-effects panel regressions with standard errors clustered at the sectorlevel. Overall, the findings suggest that U.S. presidential elections do not affect all sectors equally.Instead, election-related political uncertainty appears particularly relevant for sectors whose economicoutcomes are closely tied to government policy and regulation.