US Elections vs. the Stock Market

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 market. 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 Investment 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 Market: 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 risk 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/article/unemployment-and-the-democratic-electoral-advantage/350FF2535247A605502B6941EAA84E16

Timestamps:
0:00 Introduction to the relationship between US Elections and stock market returns
0:45 Immediate short-term effects of election results on stock market returns
3:20 How does the political party in power affect stock market returns?
7:57 Risk aversion and election outcomes

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