Political-Economic Cycles in the U.S. Stock Market

Herbst, Anthony F.; Slinkman, Craig W.

doi:10.2469/faj.v40.n2.38

Cited by 76 publications

(53 citation statements)

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“…The authors confirmed the existence of this 208-week cycle by means of spectral analysis and argued that lucrative trading was possible for those who had timed their investments in line with the recurring political pattern. Herbst and Slinkman (1984) corroborated these earlier findings using Bartels' test, which was initially invented to investigate geophysical and cosmical periodicities. Huang (1985) remarks that, during the 1961-1980 period, the annualized return difference between the second and first half of presidential This is the Post review, final submitted author manuscript accepted in International Review of Financial Analysis 2016 terms exceeded 24 percent.…”

Section: Political Business Cycle and Electionssupporting

confidence: 64%

Is There a Link between Politics and Stock Returns? A Literature Survey

Wisniewski

2015

SSRN Journal

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This survey starts by reviewing the literature investigating whether political connectedness of companies creates wealth for their shareholders. It then moves on to examine whether there is an association between the orientation of the political executive or the phase of the electoral cycle with movements of the stock market index. The price impact of politically-relevant events, such as wars, terrorist attacks, revolutions, coups or issuance of communications by those in positions of power is also discussed. The review closes with an examination of the impact of political uncertainty on stock markets and with a reflection on the direction of causality.JEL codes: G12; G14; G18; F50

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Section: Political Business Cycle and Electionssupporting

confidence: 64%

Is There a Link between Politics and Stock Returns? A Literature Survey

Wisniewski

2015

SSRN Journal

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“…5 Politicians may also attempt to manipulate the business cycle to maximize their chances of re-election (Nordhaus, 1975), which seems to be reflected in the behavior of stock markets (Herbst and Slinkman, 1984;Booth and Booth, 2003). Elections may also influence return volatility (Bialkowski, et al 2008;Pástor and Veronesi, 2012) and option prices (Kelly et al, 2014).…”

mentioning

confidence: 99%

Does economic policy uncertainty drive CDS spreads?

Wisniewski

Lambe

2015

International Review of Financial Analysis

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This study analyzes the dynamic interactions between changes in economic policy uncertainty and the fluctuations in cost of credit protection. We find that the differenced iTraxx and CDX indices are Granger-caused by variations in the political environment. Within a Vector Autoregressive framework, impulse response functions show a significant reaction of the CDS spreads to shocks in the policy risk. Implied in these findings is the possibility that country-level risk can permeate to the corporations. Furthermore, financial institutions and traders should closely monitor political developments in order to better predict the CDS premia.JEL Codes: G12; G13; G22; P16

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“…Research in behavioral finance identifies that investors are subject to sentiment [see [11]] and investor sentiment is a significant factor in asset pricing [see [1]]. Several studies attempt to establish an investor sentiment measure and so the behavioral finance literature has various proxies for investor sentiment.…”

Section: Literature Reviewmentioning

confidence: 99%

“…[9] find that the cycle of the controlling political party in Congress has no significant impact on stock returns. Hence, following [1], [7], and [8], we use the presidential political cycles as the political variable. First, controlling for macroeconomic factors, we regress investor sentiment level index on a presidential party dummy.…”

Section: Political Cycles and Investor Sentiment Levelmentioning

confidence: 99%

“…Extant research such as [1] and [2] attempt to answer this question by examining the correlation between stock returns and political cycles. Additionally, [3], [4], and [5] establish that primarily, the differences in fiscal and regulatory policies of the presidential political parties are reflected in the macroeconomy and hence stock market returns.…”

Section: Introductionmentioning

confidence: 99%

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Political Cycles, Investor Sentiment, and Stock Market Returns

Adjei¹,

Adjei²

2017

JFE

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In this study, we examine the relationships among political cycles, investor sentiment, and stock market returns. We uncover that the variable: change in investor sentiment levels, is a mediator for the relationship between political cycles and stock market returns. We establish that political cycles impact stock market returns through two channels. First, there is a direct impact of fiscal and regulatory policies on corporate fundamentals which is reflected in stock prices, and second, there is an indirect impact through the change in investor sentiment levels which in turn impacts stock prices. Additionally, we empirically examine the relationship between presidential elections cycles and investor sentiment, and find that investor sentiment levels are lower and improve during Democratic presidential terms and are higher and decline during Republican presidential terms.

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Political-Economic Cycles in the U.S. Stock Market

Cited by 76 publications

References 0 publications

Is There a Link between Politics and Stock Returns? A Literature Survey

Is There a Link between Politics and Stock Returns? A Literature Survey

Does economic policy uncertainty drive CDS spreads?

Political Cycles, Investor Sentiment, and Stock Market Returns

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