Presidential Fiscal News and Cross-section of Stock Returns

Implementing textual analysis, this paper constructs the long time-series Fiscal News Index based on a large sample of U.S. Presidential Speeches between February 1929 and December 2020. The Fiscal News Index is a priced risk factor in the cross-section of stock returns. Investors demand higher expected returns for holding stocks with high exposure to Fiscal News Index. A long short trading strategy based on this risk factor generates an average excess returns of 8.2% annually with a Sharpe ratio of 0.86. Empirical results also suggest better ability of Fiscal News compared to other business cycle indicators in terms of pricing cross-section of stock returns