From an interview with Lubos Pastor at the recent AAII conference.
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You have looked into the relationship between the party affiliation of U.S. presidents and market returns. Could you provide an overview of what you found?There’s this interesting historical fact that the stock market has done much better under Democratic presidents than under Republican presidents. In the 2019 paper, “Political Cycles and Stock Returns,” which I co-authored with Pietro Veronesi, we provide more evidence on this topic and try to get at why that is the case.
This backs up other findings of the market historically doing better when a Democrat occupies the White House than a Republican. Is there a presidential cycle at play?Yes, we believe there’s a presidential cycle to this. It’s often referred to as the “presidential puzzle,” meaning we don’t know why the market performs better under Democrats than under Republicans.
It might sound puzzling because many people believe Republicans are the pro-business party. Republicans like to cut taxes, deregulate and support businesses. Democrats, not so much. But our explanation is that it doesn’t have much to do with what presidents actually do. It’s all about when presidents get elected."
Remaining Interview Here2019 paper,
“Political Cycles and Stock Returns" Political Cycles and Stock Returns by Lubos Pastor, Pietro Veronesi
NBER Working Paper No. 23184 Issued in February 2017, Revised in May 2019
