Predicting the Presidential Election Cycle in US Stock Prices: Guinea Pigs versus the Pros
AbstractThe notion that US stock prices follow a pattern that is synchronized with the rhythm of presidential elections has been a topic 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 paper takes the existence and robustness of this presidential election cycle for granted and asks whether individuals exploit it when asked to 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. One key result is that neither group fares particularly well, though participants in the lab experiment clearly outperformed the professionals.
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Bibliographic InfoPaper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2008 with number 2008-06.
Length: 21 pages
Date of creation: Mar 2008
Date of revision:
Livingston survey; experiment; expectations; forecast; presidential election cycle; stock prices;
Other versions of this item:
- Manfred Gartner, 2010. "Predicting the presidential election cycle in US stock prices: guinea pigs versus the pros," Applied Economics Letters, Taylor & Francis Journals, vol. 17(18), pages 1759-1765.
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-15 (All new papers)
- NEP-EXP-2008-04-15 (Experimental Economics)
- NEP-POL-2008-04-15 (Positive Political Economics)
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