Political Cycles in the United States and Stock Market Volatility in other Advanced Economies: An Exponential Generalised Autoregressive Conditional Heteroscedasticity (EGARCH) Approach
Political Cycles in the United States and Stock Market Volatility in other Advanced Economies: An Exponential Generalised Autoregressive Conditional Heteroscedasticity (EGARCH) Approach

Summary/Abstract: This study investigates US political cycles and the impact, thereof on stock market volatility in advanced economies (Canada, France, Germany, Italy, Japan, Switzerland and the UK.) using monthly data over the period January 1921 to December 2017. Overall, the results indicate that the type (Democratic or Republican) of presidential administration does play a role in the behaviour of stock returns, and volatility, but the results and direction of the impact are sample specific. In general, the results tend to suggest an increase in returns and volatility of other stock markets when there is a democratic government in the US. This study suggests that there is a need for market participants to start analysing the trajectory of a certain election, beginning at the proposed event window, in order to manage their risks and be at a stable position during these periods of uncertainties.

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