President Life Cycle and Stock Market Outcomes

45 Pages Posted: 26 Jun 2017

See all articles by Yosef Bonaparte

Yosef Bonaparte

University of Colorado at Denver - Department of Finance

Date Written: June 22, 2017

Abstract

We show that stock market performance (volatility) comoves concavely (convexly) with President Seniority. There is increasing (decreasing) excess return (volatility) until the end of the fifth year in office, and then the trend reverses. Standard asset pricing theory of risk and behavioral perspective explains the excess return comovement, but faces challenges in explaining the volatility comovement, which is explained using intuition from political science, where each President faces political stages (honeymoon, midterm, reelection, lame duck) with implications for stock market outcomes. Collectively, President Seniority is a determinant of stock market outcomes, a phenomenon that can be understood by aligning asset pricing theory with political science.

Keywords: Political finance, Political cycle, Political season, Stock market performance, Over-optimism

JEL Classification: G02, G11, G12

Suggested Citation

Bonaparte, Yosef, President Life Cycle and Stock Market Outcomes (June 22, 2017). Available at SSRN: https://ssrn.com/abstract=2991226 or http://dx.doi.org/10.2139/ssrn.2991226

Yosef Bonaparte (Contact Author)

University of Colorado at Denver - Department of Finance ( email )

United States

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