Who would have thought this to be true?

[jasonxctf]

U.S. markets have had the best returns during the administrations of Presidents from which political party?

 

How respondents have answered:

 

38396 votes to date

Republican 31% 12045 votes

Democrat 68% 26351 votes

The correct answer is:

Democrats

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Even though the Republicans are typically the party associated with big business, it turns out that the market returns generated under Democratic administrations have outperformed those of Republican administrations.

UCLA Anderson School of Management finance professors, Pedro Santa-Clara and Rossen Valkanov, looked at market returns from 1927 to 1988 spanning 18 presidential elections, 10 Democratic administrations and 8 Republican administrations.1 When the researchers looked at the average excess return of the value-weighted CRSP index over the 3 month Treasury bill rate they found that Republican administrations had an excess return of approximately 2% while Democratic administrations had an excess return of approximately 11%. Santa-Clara and Valkanov determined that the wide variation in excess market returns was due to higher real market returns under Democrats as well as to real interest rates being almost 4% lower when Democrats were in the White House.

 

The exact reasons as to why Democratic administrations seem to enjoy better market returns than Republicans are not directly addressed by the paper although the authors do caution that, "given the limitations of the data, we can never be absolutely sure that the impact of political cycles on the stock market is not just a statistical fluke."

 

Ultimately, these findings should not necessarily change the way you manage your investment portfolio, as this presidential partisan effect might never be proven real. However, keep in mind that elections can drive changes in tax rates and public policy, which directly affect your investments and personal finances.