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| Type | Bachelor's Thesis |
| Scope | Discipline-based scholarship |
| Title | Returns on the US Stock Market under Republican and Democratic Presidencies |
| Organization Unit | |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Number of Pages | 40 |
| Date | 2016 |
| Zusammenfassung | There is a common notion that the Republican Party in the United States of America represents the interest of the business sector and has as well a wide voter and supporter base of such a background. Therefore there is an interest, if they actually provide quantifiable benefits for that sector. These benefits can certainly be quantified in different ways, but researches have begun to look at the returns of the business, more precisely at the returns on the stock market. In order to examine the average difference of returns between the Republican and Democratic Party, a dataset consisting of returns derived from the index Wilshire 5000 for the timeframe from 1973 to 2013 is used. The difference of the mean returns throughout the presidencies are tested under the null hypothesis H0, that the mean returns don’t differ between Republican and Democratic presidencies; while the alternative hypothesis H1 stating the mean returns are different between Republican and Democratic presidencies. In order to discover if there is the two-year presidential cycle discovered by other studies, the first half of the four-year presidential cycle is compared to the second half using the return from Wilshire 5000. Due the fact, that certain sectors are more affiliated to a certain party, the difference of the mean excess returns of four different sector indices from the S&P regarding the S&P 500 are compared between presidencies of the two parties considering a time frame of 1989 to 2016. This study differs concerning the chosen time period covering more recent years than other studies and regarding the chosen index, since the majority of the studies have used either large cap or small cap returns, whereby the Wilshire 5000’s objective is to reflect the whole equity market of the United States of America. In order to understand the interplay of power in the government of the United States of America, an overview over the political system and the political parties is needed. The US government is not only about the President, since the mobilization of the whole power in the hand of one person could be deceiving for abuse of power, therefore the Constitution has set up a few structures for the government, which is discussed in the beginning of this thesis. Afterwards a few chosen studies that covered the same respectively similar objective examined in this thesis are presented and discussed. Towards it, the hypothesis tests for the broad stock market index and as well for the excess returns of the various sector indices are conducted by using the two-sample t-test and the Mann-Whitney U-test. Simultaneously the results are discussed and compared to past studies. Finally using the results, a possible investment strategy is presented. The results of the hypothesis tests show that there is a difference between the returns of Democratic and Republican presidencies, whereby the average returns regarded for the whole term of presidency and for the first two years of a term were significantly higher during Democratic presidencies compared to Republican presidencies. Even though the average returns for the last two years of the four-year presidential term were as well higher during Democratic incumbencies, the difference was not significant. Examining this time frame for presidential cycles, where the returns of the last two years are higher than those of the first two years, showed different results. When the first half and second half of the term were compared, regardless which party was holding power at that time, the average of the second half of the presidential term was higher than the first half, but the results were insignificant. Testing for this effect separately for each party showed that the second halves of the Republicans had on average higher returns than the first halves as well, however insignificant. The first halves for the Democrats even showed slightly better returns than their second halves, but the difference was as well not significant. Finally looking at the excess returns of the various sector indices show a significant difference for excess returns of the energy sector index. The excess returns were on average 13.45% higher throughout the Republican terms, whereby when looking at it even closer, the positive excess returns were mobilized in the two terms of President George W. Bush, whereby throughout the presidency of President Obama the opposite effect on the excess returns can be observed. It might be interesting to look further into the details of the interaction between the Republicans and the energy sector. |
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