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

Abstract

This thesis examines whether political uncertainty surrounding U.S. presidential elections affects stock market volatility unevenly across sectors, with stronger effects in industries that are more exposed to government policy and regulation. While previous research has mainly focused on aggregate market reactions to elections, this study adopts a sector-level perspective and investigates whether regulation sensitive industries experience a stronger volatility response during presidential election periods. The analysis is based on monthly realized volatility constructed from daily returns of ten Fama-French industry 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 long term 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 sector level. 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 economic outcomes are closely tied to government policy and regulation.