Midterm elections’ stock market surge – an unintentional gift from US politicians

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Journal Article
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Date
2018
Authors
Bialkowski, J.
Nahavandi, A.
Abstract

The paper provides evidence for the existence of a midterm election effect on the US equity market. By examining the quarterly total returns on the S&P 500 Index between 1954 and 2017, we show that, nine times out of 10, the index has been positive in the fourth quarter of a midterm election year and the following two quarters. This compounds to nearly 25% in those three quarters. Neither changes in the monetary nor the fiscal policies were able to explain the effect. Moreover, the authors show that the known third year of a presidential term effect is weaker than the examined midterm election effect. Our results are robust for selection time period.

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Keywords
Market efficiency, Midterm election effect, Political uncertainty, Presidential cycle, Political business cycle
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ANZSRC fields of research
Fields of Research::35 - Commerce, management, tourism and services::3502 - Banking, finance and investment::350208 - Investment and risk management
Field of Research::15 - Commerce, Management, Tourism and Services::1502 - Banking, Finance and Investment::150201 - Finance
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