Should stock market return forecasts be conditioned on politics?

John G. Powell, Meifen Qian, Jing Shi*, Qiaoqiao Zhu

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)


This paper examines whether stock market returns forecasts should take account of the political party in power by re-examining the prior literature to demonstrate that US stock market political regime differences are neither significant nor long-lasting. We demonstrate that the presidential regime dummy variable used in prior studies is highly auto-correlated, thus potentially violating the ordinary least squares assumption of independently distributed regression errors. Simulation and bootstrap analyses are used to demonstrate that prior findings of higher returns and lower risk under Democratic presidencies are less than would be expected by chance, once account is taken of the persistence properties of the presidential regime dummy variable used in prior studies. Theoretical considerations are also used to explain why presidential regime differences are unlikely to persist, thus further reconciling the paper’s findings with prior studies.

Original languageEnglish
Pages (from-to)672-700
Number of pages29
JournalAustralian Journal of Management
Issue number4
Publication statusPublished - 1 Nov 2015
Externally publishedYes


  • auto-correlated explanatory variables
  • presidential regimes
  • spurious regression
  • stock market return differences


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