Political-Cycles in US Industry Returns
Journal of International Finance and Economics, Vol. 5, No. 1
Posted: 14 Mar 2008
After correcting industry returns for general market movements and known risk factors, using either the Single-Index or the Fama-French three-factor model, we find no evidence of two well known political effects documented for general stock market returns in the United States. Contrary to the general market, adjusted industry returns do not show a significant or consistent underperformance under Republican presidents. Contrary to general market indices, adjusted industry returns do not exhibit significant or a consistent presidential election cycle effect. Our results defy popular belief that some industries perform consistently better under either Democrats or Republicans, and suggest these two political effects are market wide phenomena whose explanation should be sought at a macro economic level.
Keywords: Market efficiency, Industry returns, Presidential cycle, Political business cycle
JEL Classification: E32, G10, G12
Suggested Citation: Suggested Citation