Political Indicators
It is plausible that political winds might sway the economy and therefore financial markets. To what degree do politics matter for equity investors? Should they worry about the philosophy of the party in power or unusual market behavior relative to elections? Should they act on the prognostications of political experts? These blog entries address relationships between politics and the stock market.
A Republican Risk Premium? August 22, 2006
Is the media more likely to accentuate the negative when Republicans hold the Presidency? In their October 2004 paper entitled “Is Newspaper Coverage of Economic Events Politically Biased?”, John Lott Jr. and Kevin Hassett of the American Enterprise Institute test for political bias in the economic (durable goods, GDP, retail sales and unemployment) news coverage of American newspapers, after controlling for economic content. Using headlines from a database of newspaper and wire service articles from 389 newspapers covering January 1991 through May 2004 (and back to 1985 for the top ten newspapers: USA Today, Wall Street Journal, New York Times, Los Angeles Times, Washington Post, New York Daily News, New York Post, Chicago Tribune, Newsday and Houston Chronicle), they find that: More…
Left or Right, and Up or Down August 8, 2006
Should investors lean toward governments at one end of the country political spectrum to find outperforming equity markets? In their October 2003 paper entitled “The Presidential Puzzle: Political Cycles and the Stock Market”, Pedro Santa-Clara and Rossen Valkanov examine monthly U.S. stock market performance versus executive branch party across 18 Presidential elections (1927-1998, 864 months) encompassing 10 Democratic and 8 Republican Presidencies. In their July 2006 paper entitled “Political Orientation of Government and Stock Market Returns”, Jedrzej Bialkowski, Katrin Gottschalk and Tomasz Wisniewski investigate whether the political orientation of 173 different governments systematically affects the performance of 24 international (mostly European) stock markets. Findings are: More…
When Mr. Smith Goes to Washington, Sell! March 25, 2005
In their March 2005 paper entitled “Congress and the Stock Market,” Michael Ferguson and Douglas Witte examine the relationship between stock market returns and the imminent quantity and the “quality” of Congressional activity using various stock indices over long periods. They find that: More…
