U.S. Presidential Politics and the Asset Allocation
Decisions of Individual Investors

Abstract

During the six presidential administrations between 1989 and 2012, individual investors allocated more of their investment portfolios to stocks when a Democrat presided than when a Republican was in office. They also allocated more of their portfolios to stocks during the last two years of a president’s term in office than during the first two years. These findings are consistent with previous studies suggesting that stock returns are higher during a Democratic President’s term in office than during a Republican administration. In addition, they support the idea that investors acknowledge the existence of a four-year presidential election cycle and try to profit from it.

TOPICS: Portfolio construction, security analysis and valuation, financial crises and financial market history