The U.S. Presidential Election Cycle and Stock Market Returns
Date of Award
Doctor of Business Administration (DBA)
Jack Welch College of Business
Dr. Lucjan T. Orlowski
Dr. Anastasios Malliaris
Dr. Jennifer Trudeau
This paper analyzes the relationship between the presidential election year and the stock market returns in the United States by examining the monthly returns of the Standard &Poor’s 500 stock index from January 1959 to December 2019. In essence, I test whether stock market returns improve during presidential election year, consistent with the political business cycle (PBC) and its later offshoot, the ‘presidential election cycle (PEC) hypothesis, which assumes that incumbent presidents and their parties improve economic growth and the stock market outlook by embracing expansionary macroeconomic policy. I employ the Least Squares Regression tests on monthly S&P 500 index returns and the presidential election cycle’s binary variables. I find evidence supporting the nexus between the presidential election cycle and stock market returns during this period. Most significantly, I find that, contrary to the assumption of previous studies of the PEC theory, there is not one, but two presidential election cycles. I find the first cycle where the incumbent is not seeking re-election that has a different effect on large-cap stocks from that other cycle where the incumbent is seeking re-election. I also test whether large-stock index is sensitive to partisan politics. I find a robust evidence to conclude that large-cap stocks are quite sensitive to partisan influence during a presidential election year where the incumbent president is also a candidate for re-election. Lastly, I test president-specific effect on the index return and find robust evidence of a highly significant relationship between the president’s policies and the return on S&P 500 index.
E44, G18, P16
Ugwu, G. E. (2021). The U.S presidential election cycle and stock market returns. Jack Welch College of Business & Technology dissertation, Sacred Heart University, Fairfield CT.
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In partial fulfillment of the requirements for the degree of Doctor of Business Administration in Finance, Sacred Heart University, Jack Welch College of Business and Technology, Fairfield, Connecticut.