The Presidential Life Cycle and the Stock Market

36 Pages Posted: 26 Jun 2017 Last revised: 8 Mar 2020

See all articles by William J. Bazley

William J. Bazley

University of Kansas

Yosef Bonaparte

University of Colorado at Denver - Department of Finance

Date Written: March 5, 2020

Abstract

Political science theories suggest that U.S. presidents' tenures in office share distinct phases, which have systematic characteristics, that span party ideologies. However, limited attention has been paid to the relation between the presidential life cycle and financial markets. We document that excess equity returns concavely relate with presidential seniority while volatility displays a convex relation. The nonlinear comovement cannot be explained by economic policy uncertainty, but is linked to time variation in risk appetite and investor sentiment throughout presidents' tenures. Overall, the evidence implies that theories of asset prices and investor behavior may benefit from incorporating aspects of political science.

Keywords: Political finance, Political cycle, Behavioral finance

JEL Classification: G12, G40

Suggested Citation

Bazley, William J. and Bonaparte, Yosef, The Presidential Life Cycle and the Stock Market (March 5, 2020). Available at SSRN: https://ssrn.com/abstract=2991226 or http://dx.doi.org/10.2139/ssrn.2991226

William J. Bazley

University of Kansas ( email )

3143 Capitol Federal Hall
1654 Naismith Drive
Lawrence, KS 66045
United States

Yosef Bonaparte (Contact Author)

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

United States

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