Political influences on Dow Jones Industrial Average Index returns: perception and reality

International Journal of Business Research, Jan, 2008 by Haiwei Chen, Jim Estes, Greg Richey

This study debates a long-held view that the DJII will do better under a Republican administration. From a portfolio management point of view, investors need not be automatically bullish whenever Republicans capture the White House, i.e., they need not get excited about any "election effect." However, optimism seems to warrant for a better performance in the DJII during the second half of a Presidency.

REFERENCES:

Beyer, Scott B., Jensen, Gerald R. and Johnson, Robert R., "Don't Worry about the Election: just Watch the Fed", Journal of Portfolio Management, 30, 2004, 101-109.

Booth, James R. and Booth, Lena Chua, "Is Presidential Cycle in Security Returns Merely a Reflection of Business Conditions?", Review of Financial Economics, 12, 2003, 131-159.

Johnson, Robert R., Chittenden, William and Jensen, Gerald, "Presidential Politics, Stocks, Bonds, Bills, and Inflation", Journal of Portfolio Management, 26, 1999, 27-31.

Nofisnger, John R., "Social Mood: the Stock Market and Political Cycles", Journal of Socio-Economics, 36, 2007, 734-744.

Powell, John G., Smith, Tom and Whaley, Robert E., "The Persistent Presidential Dummy", Journal of Portfolio Management, 33, 2007, 425-453.

Santa-Clara, Pedro, and Valkanov, Rossen, "The Presidential Puzzle: Political Cycles and the Stock Market", Journal of Finance, Vol. 59, no. 5, 2003, 1841-1872.

Dr. Haiwei Chen is an Associate Professor of Finance at California State University San Bernardino. He teaches corporate finance, investment, and international finance. His research has appeared in publications such as The Journal of Financial Planning and Journal of Financial Services Professionals.

Dr. James Estes CFP, ChFC, CLU, CPCU is an Assistant Professor of Finance at California State University San Bernardino after a career spanning 35 years in the financial services industry, including Presidency of a $750 million financial services company. His research has been published in The Journal of Financial Planning, Journal of Financial Service Professionals, and Journal of Accountancy.

Mr. Greg Richey is a Lecturer of Finance at California State University, San Bernardino. He teaches accounting, financial planning, corporate finance, and investments. He is in the Ph.D. program in financial economics at Claremont Graduate University's School of Politics and Economics.