Monthly Returns During Presidential and Congressional Election Years
Do the hopes and fears of elections in the U.S. affect the “normal” seasonal variation in monthly stock market returns? To check, we compare average returns and volatilities (standard deviations of returns) by calendar month for the Dow Jones Industrial Average (DJIA) during years with and without quadrennial U.S. presidential elections and biennial congressional elections. Using monthly closes for the DJIA over the period October 1928 through April 2014 (about 86 years and 20 presidential elections), we find that:
The following chart compares average DJIA returns by calendar month for four subsamples:
- Years during which there is a presidential election (20 observations).
- Years during which there is a congressional election (43 observations, including presidential election years).
- Years during which there is no presidential election (64 observations).
- Years during which there is no congressional election (43 observations).
The average return for all months over this period is 0.55%. Results suggest that elections may have special effects on January, April, May and August. However, the election subsamples are not large.
What about an effect on stock market volatility by calendar month?
The final chart shows the standard deviations of DJIA returns by calendar month for the same four subsamples. Results suggest elevated stock market volatility during May, July and August, and perhaps subdued volatility in September and October. However, as noted, the election subsamples are note large.
In summary, evidence from simple tests supports some belief that elections have effects on typical U.S. stock market seasonality.
Cautions regarding findings include:
- As noted, subsample sizes are not large, limiting confidence in findings.
- Changes in U.S. political processes and the stock market environment could affect seasonality.
See also the differences in cumulative returns and volatilities of the S&P 500 Index Trading Calendar for even and odd years.