Financial History 134 (Summer 2020) | Page 30

Fromme, the weapon didn’t fire and the attempt had little if any effect on US equities. In the second, the weapon fired but Ford was unhurt; the following day, markets fell roughly 0.5%. The March 1981 attempt on the life of Ronald Reagan was far more serious. Today we know that if Hinckley’s bullet had struck one inch to the right, or the hospital had been farther away, the wound would likely have been fatal. At the time, Reagan’s injuries were described as serious but survivable, and between the time of the news release and the market’s 4:00 p.m. close, stocks fell roughly 0.25%. The next day, stocks rallied strongly. Assassinations Bearing in mind that US equity markets were orders of magnitude larger under John F. Kennedy’s administration than under Abraham Lincoln’s, presidential assassinations have an extreme impact as they bring to the fore existential political fears. A 2014 Harvard University paper by Baker, Frydman and Hilt entitled “From Plutocracy to Progressivism? The Assassination of President McKinley as a Turning Point in American History” attests to the importance of worries about policy. It finds that “firms with vulnerability to antitrust prosecution saw greater decreases in their valuations following the assassination, suggesting that regulatory forbearance was an important mechanism by which firms benefited during McKinley’s presidency.” Lincoln’s murder occurred while North-South tensions were still high following the end of the Civil War. McKinley was shot by a putative anarchist amid growing concerns about armed leftists and nihilist insurgents. Kennedy was shot when the Cold War was heating up. As Robert Stovall, then a 37-year-old director of research at the erstwhile investment bank E.F. Hutton in New York City, recalled, “We thought the Kennedy assassination might be followed up by an even more serious incident.…We thought there might be a follow-up attack.” How did the killings affect markets? Markets were closed the day Lincoln died (Saturday, April 15); on Monday, April 17, they fell approximately 0.7%. James A. Garfield was shot on July 2, 1882. That day, stocks fell 3.3%. (He died just short of 80 days later.) William McKinley was shot on September 6, 1901 and died eight days later. Equities on the New York Stock Exchange fell 6.2% the following day. And Kennedy was shot on November 22, 1963 and died shortly thereafter. Between roughly 1:30 p.m. and 2:07 p.m. EST when trading was halted, markets fell 2.8%. 25th Amendment Section 4 of the 25th Amendment covers the removal of a President who, owing to physical or mental ailments, has become unable to discharge the duties of office. While it has never been invoked, perhaps the closest approximation to the way the stock market would react is exhibited in the response to President Dwight D. Eisenhower’s heart attack while playing golf on September 24, 1955. (Today, over 90% of individuals suffering heart attacks survive, but at that time the prospects were grimmer.) Although he survived, the Dow Jones Industrial Average fell over 6% after the news was broadcast (see Table 3). Impeachment How have impeachments impacted markets? We have three episodes for empirical reference: the impeachment trials of Andrew Johnson, Bill Clinton and Donald Trump, all of which ended in acquittal. TABLE 2: Stock Impact of Termination, Resignation or Death of Key Leaders Source Stock Return Exec/time period Fortune (2019) –4.19% (CEOs; in the following 30 days vs. S&P500) Agrawal & Chen (2017) –2.60% (directors; cumulative avg abnormal return over day before and after) Larker & Tayan (2012) –2.01% (CEOs; same day) Salas (2010) –0.64% (CEOs; same day) Worell, et al. (1993) 2.30% (Forced resignation of directors; same day) Average return: –1.43% Andrew Johnson After discharging Secretary of War Edwin Stanton, Johnson faced 11 articles of impeachment. He was impeached in February 1868 on charges of violating the Tenure of Office Act; for voicing “intemperate, inflammatory and scandalous harangues” and “loud threats and bitter menaces” against both Congress and the laws of the United States; and for unlawfully challenging the authority of the 39th Congress. Between May 16, 1868 and May 26, 1868, first one article and then two more were considered and failed to pass the two-thirds-majority threshold. The trial was adjourned, and the remaining eight articles were dropped. Bill Clinton In December 1998, President Bill Clinton faced two articles of impeachment for perjury and obstructing justice relating to the Monica Lewinsky scandal. On February 12, 1999, the Senate found Clinton not guilty on both articles. Donald Trump President Donald Trump faced two articles of impeachment which passed in December 2019: one for abuse of power and another for obstructing justice. The case centered upon the alleged withholding of military aid from Ukraine to induce an investigation of Trump’s most likely challenger in the 2020 election, former Vice President Joe Biden. On February 5, 2020, the Senate found Trump not guilty on both articles. Findings and Conclusion The actual US equity market reactions to impeachments are shown in Table 4: between the date of impeachment and the vote date; intraday on the vote date; and finally between the vote date and two months later. This is a simple study, rife like any other with hidden variables and suffering from a small-n problem (three events, with the first nearly a centuryand-a-half before the other two), but a few points are nevertheless clear. We find straightforward, virtually uniform negative responses among the market reactions to the proposed constituent elements of impeachment fears: sudden uncertainty, key person concerns 28 FINANCIAL HISTORY | Summer 2020 | www.MoAF.org