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Midterm elections and stock returns

Author

Listed:
  • Anderson, Warwick
  • Białkowski, Jędrzej
  • Wagner, Moritz

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, analysing monthly excess and risk-adjusted returns on 49 industry portfolios 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. We also find that midterm elections are predominantly associated with the market factor, and thus, higher returns appear to merely compensate investors for bearing risk.

Suggested Citation

  • Anderson, Warwick & Białkowski, Jędrzej & Wagner, Moritz, 2023. "Midterm elections and stock returns," Finance Research Letters, Elsevier, vol. 55(PA).
    • Handle: RePEc:eee:finlet:v:55:y:2023:i:pa:s1544612323001988
    DOI: 10.1016/j.frl.2023.103825
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    More about this item

    Keywords

    Midterm election; Political cycle; Political uncertainty; Industry returns; Benchmark returns;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • 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
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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