Mapping the Presidential Election Cycle in US stock markets

  • Authors:

  • Wing-Keung Wong;Michael McAleer

  • Affiliations:

  • Department of Economics, Hong Kong Baptist University, Shaw Campus, Kowloon Tong, Hong Kong, China;Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam, Netherlands and Department of Applied Economics, National Chung Hsing University, Taichung, Taiwan

  • Venue:
  • Mathematics and Computers in Simulation
  • Year:
  • 2009

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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.