Document Type

Journal Article

Department/ Unit

Department of Economics

Abstract

This paper shows that in the almost four decades from January 1965 through to December 2003, US stock prices closely followed the 4-year Presidential Election Cycle. In general, stock prices fell during the first half of a Presidency, reached a trough in the second year, rose during the second half of a Presidency, and reached a peak in the third or fourth year. This cyclical trend is found to hold for the greater part of the last ten administrations, starting from President Lyndon Johnson to the administration of President George W. Bush, particularly when the incumbent is a Republican. The empirical results suggest that the Republican Party may have greater cause to engage in active policy manipulation to win re-election than their Democratic counterparts. There is irony in that bullish runs in the stock market have tended to coincide with sub-periods under Democratic administrations. The existence of the Presidential Election Cycle shown in the paper may constitute an anomaly in the US stock market, which could be useful for investors.

Publication Year

2009

Journal Title

Mathematics and Computers in Simulation

Volume number

79

Issue number

11

Publisher

Elsevier

First Page (page number)

3267

Last Page (page number)

3277

Referreed

1

DOI

10.1016/j.matcom.2009.05.007

ISSN (print)

0378-4754

Link to Publisher’s Edition

http://dx.doi.org/10.1016/j.matcom.2009.05.007

Keywords

Presidential Election Cycle, Spectral analysis, EGARCH Intervention model, Stock prices, Returns

Included in

Economics Commons

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