Price-Earnings Changes During US Presidential Election Cycles: Voter Uncertainty and Other Determinants

26 Pages Posted: 13 Feb 2015

See all articles by John W. Goodell

John W. Goodell

University of Akron - Department of Finance, College of Business Administration

Richard Bodey

University of Akron - College of Business Administration

Date Written: December 1, 2010

Abstract

Using electronic-markets data, this paper investigates partial determinants of change in Graham’s price-earnings ratios (P/E) during US presidential election cycles. We document evidence over six elections, that as the probable winner of the election becomes clearer, markets surprisingly respond with decreases in P/E ratios. We consider that our results are consistent with rational markets reacting to presidential campaigns focused on influencing biased, sociotropic voters. These results should be of great interest to researchers concerned with market reaction to election cycles, public policy, and the overall role of election uncertainty in financial markets.

Keywords: Elections, Political business cycle, Political economy, Financial markets

JEL Classification: G10, G14, G18

Suggested Citation

Goodell, John W. and Bodey, Richard, Price-Earnings Changes During US Presidential Election Cycles: Voter Uncertainty and Other Determinants (December 1, 2010). Available at SSRN: https://ssrn.com/abstract=2563607 or http://dx.doi.org/10.2139/ssrn.2563607

John W. Goodell (Contact Author)

University of Akron - Department of Finance, College of Business Administration ( email )

259 S. Broadway
Akron, OH 44325
United States

Richard Bodey

University of Akron - College of Business Administration ( email )

Akron, OH 44325-4803
United States

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