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Predicting the presidential election cycle in US stock prices: guinea pigs versus the pros

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  • Manfred Gartner

Abstract

The notion that US stock prices follow a pattern that is synchronized with presidential elections has been discussed among financial investors for a long time. Academic work exists that supports this idea, quantifies the pattern and has demonstrated its robustness over several decades and across parties in power. This article takes the existence and robustness of this presidential election cycle for granted and asks whether individuals exploit it when they predict stock prices. It considers and contrasts two types of such forecasts: Those made by professionals included in the Livingston survey and those made by students in a laboratory experiment. A key result is that neither group fares particularly well, though participants in the experiment outperformed the professionals.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 17 (2010)
Issue (Month): 18 ()
Pages: 1759-1765

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Handle: RePEc:taf:apeclt:v:17:y:2010:i:18:p:1759-1765

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  1. Malcolm Baker & Jeffrey Wurgler, 2007. "Investor Sentiment in the Stock Market," NBER Working Papers 13189, National Bureau of Economic Research, Inc.
  2. Wong, Wing-Keung & McAleer, Michael, 2009. "Mapping the Presidential Election Cycle in US stock markets," Mathematics and Computers in Simulation (MATCOM), Elsevier, Elsevier, vol. 79(11), pages 3267-3277.
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  11. Gartner, Manfred & Wellershoff, Klaus W., 1995. "Is there an election cycle in American stock returns?," International Review of Economics & Finance, Elsevier, Elsevier, vol. 4(4), pages 387-410.
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