What to expect when you’re electing

Scott Beyer (College of Business, University of Wisconsin Oshkosh, Oshkosh, Wisconsin, USA)
Luis Garcia-Feijoo (Finance Department, Florida Atlantic University, Boca Ranton, Florida)
Gerry Jensen (Heider College of Business, Creighton University, Omaha, Nebraska, USA)
Robert R. Johnson (The American College of Financial Services, Bryn Mawr, Pennsylvania, USA)

Managerial Finance

ISSN: 0307-4358

Publication date: 12 October 2015

Abstract

Purpose

The purpose of this paper is to analyze security-market returns relative to the political party of the president, the Federal Reserve’s monetary policy, the year of the president’s term, and the state of political gridlock. Contrary to prior studies, which evaluated the influences separately, the authors jointly evaluate these variables.

Design/methodology/approach

The analysis supports the notion that security returns are significantly related to shifts in Fed monetary policy, political gridlock, and the year of the presidential term; however, returns are generally invariant to the president’s political party affiliation. Overall, the findings suggest that investors should focus less attention on the party of the president and instead more closely monitor Fed actions.

Findings

It appears that political harmony should be welcomed by equity investors, but not debt investors. Finally, regardless of the political outcome, if the past serves as a guide, investors may have to wait until year three of the next presidential term to enjoy the fruits of the current political season.

Originality/value

The academic literature is rich with studies that consider the aforementioned political effects and the influence that monetary policy have on the markets. To date, however, these factors have not been jointly considered when examining returns. This paper considers several dimensions of the political landscape – the party of the president, the presence or absence of political gridlock, and the presidential term cycle effect – in conjunction with Fed monetary policy in examining long-term security returns. By examining the relationship between security returns and both political and monetary conditions, the authors provide robust evidence regarding the relationships.

Keywords

Citation

Beyer, S., Garcia-Feijoo, L., Jensen, G. and Johnson, R. (2015), "What to expect when you’re electing", Managerial Finance, Vol. 41 No. 10, pp. 1032-1045. https://doi.org/10.1108/MF-07-2015-0209

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Publisher

:

Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited

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