Fact or Fiction : Presidential Elections Act as Stock Market Predictors

Abstract

This paper examines the impact of the presidential election on the first hundred day stock market returns. Usually, studies that use presidential elections as predictors for stock market returns generally account for a combination of macroeconomic variables with variables addressing the current geopolitical climate. However, none of the studies examined combined the political theory with stock market data. The author found that using economic variables and time it is possible to predict Democratic presidents market returns with a high degree of certainty. However, the same model does not show significant results when predicting Republican presidential returns. This is because there have been a few extraneous economic conditions for Republican presidents' that cannot be accounted for in the model. Similarly, it is shown that over time Democratic presidents' market returns are more predictive, suggesting that the theory of the modem presidency expands to the president's influence on the stock market.