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Are Stock Returns and Output Growth Higher Under Democrats?

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Abstract

Recent literature suggests that both stock returns and economic growth are significantly higher under Democratic presidential administrations. This is a puzzle in that persistent differences in stock returns seem unlikely in efficient markets, and it is not obvious why Democrats should do better. Often these kinds of results go away upon further analysis or more data, and this appears to be true in the present case. In this paper the sample is extended to 27 administrations, from Wilson-1 through Trump. While the mean stock return under the Democrats is generally higher, none of the differences in means are significant at conventional significance levels. There is considerable variation in the mean return across administrations, which results in lack of significance. Similarly, while the mean output growth rate under the Democrats is larger, the difference is not significant. Again, there is considerable variation in output growth across administrations. Results are also presented with the ten administrations between Grant-2 and Taft added, a total of 37 administrations. While the added data are likely not as good, the conclusion is the same-no significant differences.

Suggested Citation

  • Ray C. Fair, 2021. "Are Stock Returns and Output Growth Higher Under Democrats?," Cowles Foundation Discussion Papers 2277, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:2277
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    File URL: https://cowles.yale.edu/sites/default/files/files/pub/d22/d2277.pdf
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    2. Ľuboš Pástor & Pietro Veronesi, 2020. "Political Cycles and Stock Returns," Journal of Political Economy, University of Chicago Press, vol. 128(11), pages 4011-4045.
    3. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    4. Robert J. Gordon, 1986. "The American Business Cycle: Continuity and Change," NBER Books, National Bureau of Economic Research, Inc, number gord86-1.
    5. Romer, Christina D, 1986. "Is the Stabilization of the Postwar Economy a Figment of the Data?," American Economic Review, American Economic Association, vol. 76(3), pages 314-334, June.
    6. Robert J. Gordon, 1986. "Front matter, The American Business Cycle. Continuity and Change," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages -15, National Bureau of Economic Research, Inc.
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    1. Ray C. Fair, 2021. "Retrospective Voting Versus Risk-Aversion Voting: A Comment on Pástor and Veronesi (2020)," Cowles Foundation Discussion Papers 2279, Cowles Foundation for Research in Economics, Yale University, revised Jul 2021.
    2. Ray C. Fair, 2021. "Retrospective Voting Versus Risk-Aversion Voting," Cowles Foundation Discussion Papers 2279, Cowles Foundation for Research in Economics, Yale University.

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    More about this item

    Keywords

    Stock returns; Output growth; Political parties;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises

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