The midterm election effect on US stock returns: Some practical considerations for investors

Warwick Anderson, Jędrzej Białkowski () and Moritz Wagner ()
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Jędrzej Białkowski: University of Canterbury, https://www.canterbury.ac.nz

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: The midterm election effect is one of the most persistent regularities related to US politics reported in empirical finance, but it has also been one of the least examined. We explore practical implications for investors who would like to benefit from the effect. First, we draw lessons from an analysis of 49 industry portfolios, using monthly excess and risk-adjusted returns for the period 1926-2022. Contrary to much commentary in the professional media and prior literature, higher returns around midterm elections all but disappear after returns are adjusted for risk. Second, we find that midterm elections are predominantly associated with the market factor and thus, higher returns appear to merely compensate investors for bearing risk.

Keywords: Midterm election; political cycle; political uncertainty; industry returns; benchmark returns (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 P48 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2023-05-01
New Economics Papers: this item is included in nep-pol
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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:23/05

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