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Reply #1: The market always has done better under democratic presidents [View All]

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snippy Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Feb-14-04 12:23 PM
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1. The market always has done better under democratic presidents
than under republican presidents.
The Presidential Puzzle:
Political Cycles and the Stock Market


The excess return in the stock market is higher under Democratic than Republican presidencies:nine percent for the value-weighted and 16 percent for the equal-weighted portfolio. The difference comes from higher real stock returns and lower real interest rates,is statistically significant,and is robust in subsamples.The difference in returns is not explained by business-cycle variables related to expected returns,and is not concentrated around election dates. There is no difference in the riskiness of the stock market across presidencies that could justify a risk premium.The difference in returns through the political cycle is therefore a puzzle.

This analysis covers the years 1927-1998 and separately examines the years from 1927-1962 and 1963-1998. Results which included the years from 1999-2003 would show an even greater difference. All studies show this difference, although one finds the difference of a few percentage points to be statistically insignificant.
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