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Economic policy and the presidential election cycle in stock returns

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  • Ray Sturm

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    Abstract

    Many papers in the academic literature have documented a “Presidential Election” cycle in stock returns. Prior literature also documents that stock returns appear to be influenced by economic policy. The goal of this study is to examine the tools of fiscal and monetary policy to test for the presence of a presidential election cycle. The findings strongly suggest that the presidential election cycle in stock returns and the government’s economic policy influence on stock returns are two separate phenomena. Moreover, it is much more likely that stock returns are influencing economic policy rather than the other way around. However, the findings also suggest that tax legislation may drive the Presidential Election Cycle. Copyright Springer Science+Business Media, LLC 2013

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    File URL: http://hdl.handle.net/10.1007/s12197-011-9179-6
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    Bibliographic Info

    Article provided by Springer in its journal Journal of Economics and Finance.

    Volume (Year): 37 (2013)
    Issue (Month): 2 (April)
    Pages: 200-215

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    Handle: RePEc:spr:jecfin:v:37:y:2013:i:2:p:200-215

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    Related research

    Keywords: Stock Returns; President; Election Cycle; Economic Policy; Tax Legislation;

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    1. Gartner, Manfred & Wellershoff, Klaus W., 1995. "Is there an election cycle in American stock returns?," International Review of Economics & Finance, Elsevier, vol. 4(4), pages 387-410.
    2. David A. Becher & Gerald R. Jensen & Jeffrey M. Mercer, 2008. "Monetary Policy Indicators As Predictors Of Stock Returns," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 31(4), pages 357-379.
    3. Ben S. Bernanke & Kenneth N. Kuttner, 2004. "What Explains the Stock Market's Reaction to Federal Reserve Policy?," NBER Working Papers 10402, National Bureau of Economic Research, Inc.
    4. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
    5. Jinliang Li & Jeffery A. Born, 2006. "Presidential Election Uncertainty And Common Stock Returns In The United States," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 29(4), pages 609-622.
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    7. Willem Thorbecke, 1995. "On Stock Market Returns and Monetary Policy," Economics Working Paper Archive wp_139, Levy Economics Institute.
    8. Sellin, Peter, 2001. " Monetary Policy and the Stock Market: Theory and Empirical Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 15(4), pages 491-541, September.
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    10. Ray Sturm, 2009. "The 'other' January effect and the presidential election cycle," Applied Financial Economics, Taylor & Francis Journals, vol. 19(17), pages 1355-1363.
    11. Darrat, Ali F, 1988. "On Fiscal Policy and the Stock Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(3), pages 353-63, August.
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    13. Darrat, Ali F., 1990. "Stock Returns, Money, and Fiscal Deficits," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(03), pages 387-398, September.
    14. Pedro Santa-Clara & Rossen Valkanov, 2003. "The Presidential Puzzle: Political Cycles and the Stock Market," Journal of Finance, American Finance Association, vol. 58(5), pages 1841-1872, October.
    15. Dopke, Jorg & Pierdzioch, Christian, 2006. "Politics and the stock market: Evidence from Germany," European Journal of Political Economy, Elsevier, vol. 22(4), pages 925-943, December.
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    17. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-Party System as a Repeated Game," The Quarterly Journal of Economics, MIT Press, vol. 102(3), pages 651-78, August.
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