Washington meets Wall Street: A closer examination of the presidential cycle puzzle

Kräussl, Roman; Lucas, André; Rijsbergen, David R.; Sluis, P.J. van der; Vrugt, Evert B.

doi:10.1016/j.jimonfin.2013.11.003

Cited by 14 publications

(4 citation statements)

References 34 publications

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“…A more recent study by Kräussl et al (2014) similarly shows that the presidential election cycle is not a phenomenon generated by business cycle variation, risk or manipulation of policy instruments, which does rule out the Nordhaus-type and other rational explanations. At the same time, however, the authors remain skeptical whether sentiment alone can be propounded as an explanation for this anomaly.…”

Section: Political Business Cycle and Electionsmentioning

confidence: 95%

Is there a link between politics and stock returns? A literature survey

Wisniewski

2016

International Review of Financial Analysis

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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 Electionsmentioning

confidence: 95%

Is there a link between politics and stock returns? A literature survey

Wisniewski

2016

International Review of Financial Analysis

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“…Herbst and Slinkman (1984) conclude that the stock market follows a cycle that corresponds to U.S. presidential elections. Beyer, Jensen, and Johnson (2008), Wong and McAleer (2009), and Kräussl, Lucas, Rijsbergen, van der Sluis, and Vrugt (2014) come to similar conclusions. Sturm (2016) finds that firms' book-to-market ratios are related to the presidential election cycle.…”

Section: Introductionmentioning

confidence: 55%

Political Parties in Power and U.S. Economic Performance

Chittenden¹

2020

SSRN Journal

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This study examines the simultaneous interaction between political control of the White House and both chambers of Congress and the impact of those combinations on various measures of economic activity in the U.S. Past economic growth is not significantly different under Republican and Democratic presidential administrations. Nor does the party that controls the House of Representatives appear to have a significant impact on economic growth. However, growth has been strongest when Republicans control the Senate. Non-farm payrolls and industrial production grow faster under Democratic Presidents, while higher inflation and unemployment are generally observed when Democrats control the Senate or House. Republican Presidents are in office for a significantly greater number of months when the economy is in a recession. The same is true when Democrats are in charge of the Senate or House. The U.S. economy appears to have the strongest performance under the combination of a Democratic President with a Republican controlled Senate and House, and the weakest economic performance is generally under a Republican President with a Senate controlled by Democrats and a Republican controlled House.

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“…Note from the data that most presidents seem to be consistent is in producing greater returns in the third and fourth years of their terms as they get ready for the next election. In "Washington meets Wall Street: A closer examination of the presidential cycle puzzle," Kraussl et al ( 2014) [12] found that the annual excess returns of the S&P500 were almost 10% higher during the last two years of a president's four year term. Many economic explanations were tried with little effect.…”

Section: Historical Market Return Datamentioning

confidence: 99%

Why Market Returns Favor Democrats in the White House

Long¹

2015

ujaf

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This study attempts to explain why the equity market earns greater returns for bearing risk when a Democrat is President in the USA versus a Republican. I look at data from 1929 through 2012. The data show that the value weighted return minus the corresponding period's risk free rate is 10.83% when a Democrat is President, versus a corresponding return of -1.20% under Republican Presidents. Two basic macroeconomic arguments exist that should affect market value between the two parties: differences in the risk free interest rates and differences in economic growth. On average the Democrats follow a policy of low interest rates. The rate of return on short-term T-bills averages 4.55% under the Republicans and a 2.48% under Democrats. Further, the Democrats overall economic policies create a higher average real growth rate with a 4.8% average versus only 1.8% under Republican administrations. Unfortunately, the growth and interest rate differences together do not explain the observed difference in equity market returns. A basic OLS approach with annual value weighted market returns minus the corresponding risk free rate as the dependent variable is run. Neither risk free interest rates nor real economic growth are significant in explaining the observed market returns though the party in power is significant predictor.

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Washington meets Wall Street: A closer examination of the presidential cycle puzzle

Cited by 14 publications

References 34 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

Political Parties in Power and U.S. Economic Performance

Why Market Returns Favor Democrats in the White House

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