The Persistent Presidential Dummy

31 Pages Posted: 17 Jun 2006

See all articles by John G. Powell

John G. Powell

Massey University - Department of Finance Banking and Property

Jing Shi

Macquarie University

Tom Smith

University of Queensland - Faculty of Business, Economics and Law; Financial Research Network (FIRN)

Robert E. Whaley

Vanderbilt University - Finance

Date Written: June 15, 2006

Abstract

Whether Republican or Democratic presidents are better for the the stock market has been closely scrutinized for years. Although much of it is discussed only in casual terms, a recent academic study by Santa Clara and Valkanov (2003) documenting that the market does significantly better under Democratic regimes was widely quoted in the financial press. Indeed, a link to the study's results was posted to the Kerry/Edwards website. This paper shows that the statistical tests applied by the authors of the study were wrong, and that, once corrected, the difference in stock market returns under different presidential regimes is not meaningful. The lessons of the paper extend well beyond the presidential effect and emphasize the importance of proper research design in carrying out statistical investigations.

Keywords: spurious regression, persistence, data mining, dummy variable

JEL Classification: G12, C15, C22

Suggested Citation

Powell, John G. and Shi, Jing and Smith, Tom M. and Whaley, Robert E., The Persistent Presidential Dummy (June 15, 2006). Available at SSRN: https://ssrn.com/abstract=909195 or http://dx.doi.org/10.2139/ssrn.909195

John G. Powell

Massey University - Department of Finance Banking and Property ( email )

Private Bag 11 222
Massey University
Palmerston North, 4442
New Zealand

Jing Shi

Macquarie University ( email )

Eastern Rd.
North Ryde
Sydney, NSW 2109
Australia

HOME PAGE: http://https://researchers.mq.edu.au/en/persons/jing-shi

Tom M. Smith

University of Queensland - Faculty of Business, Economics and Law ( email )

4072 Brisbane, Queensland
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Robert E. Whaley (Contact Author)

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States
615-343-7747 (Phone)
615-376-8879 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
417
Abstract Views
3,304
rank
76,416
PlumX Metrics