TABLE 1: Market Impact of Events Generating Sudden,
Extreme Uncertainty
Event Next market date 1 day ret (DJIA)
Pearl Harbor attacks Dec 8–9, 1941 –6.30% (2 days)
Beirut Marine barracks bombing 23-Oct-83 0.10%
WTC truck bombing 26-Feb-93 1.00%
Oklahoma City bombing 19-Apr-95 0.70%
Khobar Towers bombing 26-Jun-96 –0.64%
Kenya & Tanzania Embassy bombings 7-Aug-98 0.24%
Monday after 9/11 17-Sep-01 –7.10%
Bank bailout (TARP) rejected 29-Sep-08 –7.00%
Trump: “Coronavirus may last until August” 16-Mar-20 –12.93%
unexpected resignations among key executives
… maybe you should go too.” Most
individuals do not leave a high-paying
position they’ve spent decades jostling for
under unremarkable circumstances.
While numerous factors influence the
market reaction (such as the stock performance
under their tenure, the existence
of a clearly defined succession plan,
etc.), consider a few such studies. Fortune
(2019) reports that “companies whose
CEOs departed saw their stocks’ returns
drop an average of 4.19% in the 30 days
following compared to the S&P 500.”
Larcker and Tayan (2012) cover 12 CEO
deaths between 1994 and 2012 and report
that the stock price on the day of the
executive’s death fell by 2.01% on average.
And Salas (2010) indicates that the sudden
death of a CEO leads the stock price to fall
immediately by 0.64% on average.
–3.55%
and one day after. It is even larger, −3.9%
or −10.3%, if the resigning director is an
insider. Worell, Davidson and Glascock
(1993) find a statistically significant price
increase of 2.3% in the case of forced resignations,
no doubt indicating that in those
cases, investors were relieved and looked
ahead to an improved future. Context, as
always, is pivotal (see Table 2).
III: Removal of a US President
(Outside Term of Office)
In addition to general uncertainty and
fears arising from the removal of any key
decision maker, the impeachment of a US
President introduces worries unique to the
circumstances surrounding the removal of
an elected official with significant influence
over both the United States and the
world at large—not only economically but
geopolitically. Domestically, the impeachment
introduces significant uncertainty
surrounding such executive powers as the
veto, the ability to issue executive orders,
the tenure of Cabinet appointees, the possible
abruption of policy initiatives and
so on.
The unscheduled exit of a President
may occur for several reasons besides
impeachment: resignation, assassination
or invocation of the 25th Amendment
(concerning inability “to discharge the
powers and duties of his office”). I now
consider the stock market returns associated
with these types of episodes.
Resignation
The day after the August 8, 1974 announcement
of Richard Nixon’s resignation, the
Dow Jones Industrial Average fell 1.3%.
(An important side note: by September 1,
1974, the index had fallen over 15%.)
Assassination Attempts
Several weeks before his inauguration in
early 1933, an attempt was made on the life
of Franklin Delano Roosevelt. Although
he was unhurt, equities fell by slightly over
2% the next day. In September 1975, two
assassination attempts were made against
Gerald Ford. In the first, undertaken by
former Mansonite Lynnette “Squeaky”
Other Corporate Executives
The impact upon stock prices of the resignation
or termination of other managers
depends largely upon the circumstances
leading up to the change. Agrawal and
Chen (2008), for example, report that
“stock prices decline significantly (both
statistically and economically) upon news
of these events” and that “firms [with
internal management disputes] have poor
operating performance in the years surrounding
the dispute episode, and experience
significantly greater incidence of
stock market delisting in the years following.”
They find that the cumulative
average abnormal return is −2.6% between
the day before the episode and the day
after and –6.1% between 10 days before
An engraving showing the impeachment trial of President Andrew Johnson in the Senate, March 13, 1868.
Library of Congress
www.MoAF.org | Summer 2020 | FINANCIAL HISTORY 27