Financial Astrology: Mapping the Presidential Election Cycle in US Stock Markets

27 Pages Posted: 26 Nov 2008

See all articles by Wing-Keung Wong

Wing-Keung Wong

Asia University, Department of Finance

Michael McAleer

Erasmus University Rotterdam - Erasmus School of Economics, Econometric Institute; Tinbergen Institute; University of Tokyo - Centre for International Research on the Japanese Economy (CIRJE), Faculty of Economics

Date Written: October 2008

Abstract

This paper shows that in the almost four decades from January 1965 through to December 2003, US stock prices closely followed the four-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 present administration under 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.

Keywords: Presidential election cycle, spectral analysis, EGARCH intervention model, stock prices and returns

JEL Classification: E32, G14

Suggested Citation

Wong, Wing-Keung and McAleer, Michael, Financial Astrology: Mapping the Presidential Election Cycle in US Stock Markets (October 2008). Available at SSRN: https://ssrn.com/abstract=1307643 or http://dx.doi.org/10.2139/ssrn.1307643

Wing-Keung Wong (Contact Author)

Asia University, Department of Finance ( email )

Taiwan
Taiwan

Michael McAleer

Erasmus University Rotterdam - Erasmus School of Economics, Econometric Institute ( email )

Rotterdam
Netherlands

Tinbergen Institute

Rotterdam
Netherlands

University of Tokyo - Centre for International Research on the Japanese Economy (CIRJE), Faculty of Economics

Tokyo
Japan

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1,032
Abstract Views
7,393
rank
30,752
PlumX Metrics