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Historical Effect of Presidential Elections on the Financial Markets

Historical Effect of Presidential Elections on the Financial Markets. Lee Biggerstaff. Importance to You. Election every 4 years Some correlation between elections and market movements Historical trends combined with fundamental analysis may help produce better returns. Flaws.

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Historical Effect of Presidential Elections on the Financial Markets

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  1. Historical Effect of Presidential Elections on the Financial Markets Lee Biggerstaff

  2. Importance to You • Election every 4 years • Some correlation between elections and market movements • Historical trends combined with fundamental analysis may help produce better returns

  3. Flaws • Lots of externalities that effect the stock market • Short term market movers verses long term market trends

  4. Long Run verses Short Run

  5. Market Movements the Month after the Election • Markets do better in the weeks after a Republican is elected • Market is consistently positive after a Republican victory and negative after a Democratic victory

  6. Average Returns during 4 year Terms • Large-Cap No statistical difference • Small-Cap Better performers under Democrats • Bonds Better performers under Republicans

  7. Large Cap Stocks • No statically significant difference between a republican or democrat in office • SP500 shows average 4 year return of 30% for Republicans and 34% for Democrats

  8. Small Cap Stocks • Average real returns of 22.66% during Democratic administrations • Average real returns of 3.70% during Republican administrations

  9. Bonds • Long-term corporate bonds and governments bonds yield real returns that are negative during Democratic administrations • These bonds are consistently positive during Republican administrations

  10. Inner-term Market movements • Years 1 and 2 show lower returns on both large cap and small cap stocks • Years 3 and 4 show higher returns to both large cap and small cap stocks • No inner-term differences on bond rates

  11. Conclusion • Market Timing • Large caps not as effected by President • Small caps respond better to Democrats • Bonds respond better to Republicans

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