With the upcoming United States presidential election, lots of investors are worried about how the election outcome will affect their investments. This is not a new worry – elections are stressful times and it seems obvious that the outcome should impact the stock sector. Rhetoric from across the political spectrum certainly doesn’t help.
Fortunately, the relationship between stock markets, elections, and political parties has been studied extensively, allowing us to step back from the rhetoric to consider the historical data and the theories that explain it.
Referenced in this video:
Political Climate, Optimism, and capital Decisions: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1509168
With Greater Uncertainty Comes Greater Volatility: https://jii.pm-research.com/content/10/3/6
The Presidential Puzzle: Political Cycles and the Stock sector: https://onlinelibrary.wiley.com/doi/epdf/10.1111/1540-6261.00590
What Moves Stock Prices?: https://www.nber.org/papers/w2538
Political Cycles and Stock Returns: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2909281
Time varying hazard aversion: http://www.eief.it/eief/images/Guiso-Sapienza-Zingales_JofFE_2018.pdf
Partisan Financial Cycles: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1616374
Unemployment and the Democratic Electoral Advantage: https://www.cambridge.org/core/journals/american-political-science-review/piece/unemployment-and-the-democratic-electoral-advantage/350FF2535247A605502B6941EAA84E16
Timestamps:
0:00 Introduction to the relationship between US Elections and stock sector returns
0:45 Immediate short-term effects of election results on stock sector returns
3:20 How does the political party in power affect stock sector returns?
7:57 hazard aversion and election outcomes
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