NYSE Sector Returns and Political Cycles

Political Party Affiliation of the President, Majority in Congress, and Sin Stock Returns

“…Consistent with prior research (Huang, ; Santa‐Clara and Valkanov, ; Swensen and Patel, ), the monthly average overall market return is higher during Democratic presidencies than during Republican presidencies. However, sin stocks perform better on average during Republican (1.20%) versus Democratic (0.98%) presidencies.…”

“…Allvine and O'Neill (), Hensel and Ziemba (), and Swensen and Patel () find evidence of a politically motivated two‐year stock market cycle, which is a consequence of the use of macroeconomic policy to influence the economy. For both Republican and Democratic administrations, the stock market returns during the third and fourth years of a presidential term exceed the returns during the first two years.…”

“…Other notable studies on the presidential puzzle are Hensel and Ziemba (), Swensen and Patel (), and Sy and Zaman (). Using data from 1928 to 1993, Hensel and Ziemba () find significantly higher returns for small‐cap stocks during Democratic administrations as compared to Republican administrations but identical returns for large‐cap stocks.…”

“…In addition, they find significantly higher returns during Republican administrations for corporate bonds, long‐term and intermediate government bonds, and cash. Swensen and Patel () examine the New York Stock Exchange (NYSE) Composite Index from 1969 to 2000 and find that the possibility of positive returns, although not statistically significant, is greater during Democratic presidencies. Sy and Zaman () study 1926–2007 and find higher returns during Democratic presidencies.…”

The impact of politics and economic policy uncertainty on anomaly-based investment strategies

“…On the other hand, an extensive body of subsequent studies offers conflicting and thought-provoking conclusions, yielding further attention to the then labeled “Wall-Street folklore” and the now dubbed “presidential puzzle.” Among other studies on this link between the party affiliation of the president and the stock market are Riley and Luksetich (1980), Hensel and Ziemba (1995), Santa-Clara and Valkanov (2003), Swensen and Patel (2004), Beyer et al (2006), Sy and Zaman (2011), Novy-Marx (2014) and more recently Sabherwal et al (2017). Using a sample of 20 presidential elections from 1900 to 1976, Riley and Luksetich (1980) find evidence consistent with Niederhoffer et al (1970), that there exists a short-run positive reaction following the election of Republican presidents and a negative reaction following the election of Democratic presidents.…”