When the Odds Change: Evaluating the Effects of the 2024 U.S. Election Win Probabilities and ESG Ratings on Stock Returns

Abstract

This paper examines how short-term fluctuations in the perceived likelihood of a Republican victory during the 2024 U.S. presidential election interacted with firm-level ESG ratings to influence stock returns. Using a panel of daily abnormal returns for 2,767 U.S.-listed firms from April 1 to November 8, 2024, and real-time betting-market probabilities from RealClearPolitics, we estimate a series of OLS regressions with f irm and date fixed effects, controlling for earnings surprises, firm size, index membership, and sector effects. We also conduct an event-study on the most extreme election-odds shock days. Our results show that abrupt increases in Republican win probability are followed by statistically and economically significant underperformance of high-ESG firms relative to low-ESG peers, with a modest persistence into the next trading day. Conversely, sharp decreases in Republican odds deliver a fleeting outperformance for high-ESG firms on the shock day only. Sector-level analyses reveal the strongest ESG shock effects in energy and utilities, while Technology and Financials exhibit no discernible ESG differential. We find no evidence that S&P500 membership alters these dynamics. Post-election, high-ESG firms briefly rebound, suggesting the effects are driven by short-run information adjustments rather than permanent valuation shifts.