Abstract
This article provides evidence for the existence of a midterm election effect. By examining the quarterly total returns on the S&P 500 Index between 1954 and 2017, we show that, 9 times out of 10, the index has been positive in the fourth quarter of a midterm election year and the following two quarters. These returns compound to nearly 25% in those three quarters. Neither changes in the monetary nor the fiscal policies were able to explain the effect. We show that the known third year of a presidential term effect is weaker than the examined midterm election effect.
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