Political Indicators

In their June 2010 book Capital Rising: How Capital Flows Are change Business Systems All Over the World, authors Peter Cohan and Srinivasa Rangan mine lessons from 47 case studies to “describe the phenomenon of capital flows, present new ways to think about what causes them to rise and fall, and describe ways that our readers can profit from this framework.” Specifically, in Chapter 7 (“Implications for Capital Providers”) they argue “that analyzing a country’s EE [Entrepreneurial Ecosystem] is essential for capital providers to maximize investment returns” and provide a six-step methodology to “help capital providers to sniff out the best opportunities…” The six steps are: Keep Reading

A reader asked: “I am curious how reliable some of the factors referenced in the Stock Trader’s Almanac are, but I see no reference to it on your site. Could you review the book and/or the primary strategies in the book? I would be curious to have your perspective on how rigorous its analysis is.” Keep Reading

How does the U.S. Securities and Exchange Commission’s (SEC) level of spending relate to U.S. stock market returns? Are expenditures reactive, growing after bear markets? Does higher spending boost investor confidence and subsequent stock returns? To investigate, we relate SEC outlays and the S&P 500 Index by federal fiscal year (October through September). Using agency outlay data for fiscal years 1990 through 2010 (estimates for the final two years) and S&P 500 closes for fiscal years 1986 through 2008, we find that: Keep Reading

“When Mr. Smith Goes to Washington, Sell!” summarizes research finding that the U.S. stock market generates higher and less volatile when Congress is not in session. Is this finding robust to inclusion of recent data? To check, we examine average daily returns when the U.S. Senate is in session and out of session based on open-to-open market data (for alignment of daily Senate activity to potentially related daily trading). Using Senate in session data, party in power data and daily opening levels of the S&P 500 Index for 1978 through 2009 (partial through June 12), we find that: Keep Reading

Is there a relationship between investor risk-aversion, as indicated by the aggregate U.S. stock market price-earnings ratio (P/E), and level of public satisfaction with the performance of the President? In their December 2008 paper entitled “Speculating on Presidential Success: Exploring the Link between the Price-Earnings Ratio and Approval Ratings”, Tomasz Wisniewski, Geoffrey Lightfoot and Simon Lilley examine the relationship between aggregate stock market P/E and the surveyed level of public approval of the current President. Using quarterly P/E for the S&P Composite Stock Price Index derived from Robert Shiller’s long-run dataset and Gallup presidential approval survey data from the beginning of 1950 through the third quarter of 2007 (231 observations), they conclude that: Keep Reading

Are there reliable periodicities in U.S. stock returns tied to national election cycles? In their October 2008 paper entitled “Financial Astrology: Mapping the Presidential Election Cycle in US Stock Markets”, Wing-Keung Wong and Michael McAleer apply spectral analysis to identify and quantify cycles in U.S. stock market returns, including a presidential election cycle. Using weekly S&P 500 index data for the period 1965-2003, they conclude that: Keep Reading

Do certain market industries outperform when Democrats or Republicans hold the U.S. presidency, or during certain years of the presidential term? In their recent paper entitled “Political Cycles in US Industry Returns”, Jeffrey Stangl and Ben Jacobsen investigate whether specific industries tend to perform better: (1) under Democratic or Republican presidents; and (2) during the last two years of a presidency. Using return data for 48 industries representing all stocks listed on the major U.S. exchanges during 1926-2006, they conclude that: Keep Reading

Do political factors influence stock valuation levels? In his July 2007 paper entitled “Can Political Factors Explain the Behavior of Stock Prices Beyond the Standard Present Value Models?”, Tomasz Wisniewski explores the degree to which political factors affect valuation of U.S. equities. Specifically, he examines whether party holding the Presidency (12 presidencies), Presidential approval ratings and timing of eight major military conflicts affect stock price levels relative to rational valuation models. Using data from a variety of sources for the period 1945-2005, he concludes that: Keep Reading

Are “hands-off” (right-leaning) governments better for stocks than “hands-on” (left-leaning) governments? In their recent paper entitled “Investment Returns Under Right- and Left-Wing Governments in Australasia”, Hamish Anderson, Christopher Malone and Ben Marshall examine the effect of ruling party orientation on inflation, and thereby on stock, property and bond returns, in Australia and New Zealand. Using monthly, annual and political-term data as available across the period 1910-2006, they find that: Keep Reading

Do companies that “grease the wheels” of our political system via campaign contributions benefit from such participation? In other words, is there a significant positive correlation between company campaign contributions and stock returns? In their October 2006 paper entitled “Corporate Political Contributions and Stock Returns”, Michael Cooper, Huseyin Gulen and Alexei Ovtchinnikov construct a measure of the breadth of company campaign contribution activity and investigate whether this measure relates systematically to returns for shareholders. Combining data from the Federal Election Commission on political action committee (PAC) contributions of publicly traded firms for the period 1979-2004 (over 800,000 contributions by 1,930 firms) with associated stock price and financial data, they conclude that: Keep Reading