Elections, Political Control and Duration of Stock Market Cycles

Fan Wang
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Fan Wang: Department of Economics, University of Kansas

No 201810, WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS from University of Kansas, Department of Economics

Abstract: This study uses duration analysis to investigate whether the occurrence and the outcome of presidential elections can affect the timing of turning points of the U.S. stock market cycle. Results suggest that political alignment between the White House and the Congress (political control) plays an important role in the timing of turning points relative to the elections. Specifically, our estimates show that the increased hazard for a bear market prior to an election predicted by our Hypothesis One is only found to be significant when political control is absent or when the incumbent is a Republican. However, the predicted rise in the hazard for a bull market in the period immediately after an election is not found in our data. In fact, the estimates reveal a smaller probability for a market peak to occur in the post-election period than at other times if the party of president elected did not control the Congress. A further examination of the post-election effects provides evidence that is consistent with our Hypothesis Two that there is no difference in the likelihood of a peak or trough after the election of a Democratic president as compared to other times. Furthermore, the estimates show that market troughs are less likely to occur in the wake of a Republican presidential victory than at other times and political control attenuates this post-Republican effect. Finally, although the implied post-Republican surge in the hazard for a bull market is not found in our data, political control does seem to boost the hazard for a bull market after an election of a Republican.

Date: 2018-10, Revised 2018-10
New Economics Papers: this item is included in nep-pol
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