Influence of US Presidential Terms on S&P500 Index Using a Time Series Analysis Approach

This paper examines the influence of US presidential terms on the stock market by focusing on the S&P500 index. Fractional integration techniques, which are more general than other standard methods, are used and the results obtained produce interesting findings. It was found that during the second presidential terms, stock markets are less efficient and present higher degrees of persistence in their volatilities. This is observed independently of the political affiliations of the president in power. The volatility, in general, reflects the spillover of economic excesses at the end of the first presidential term when seeking re-election into the second term in office. Expansionary monetary and fiscal policies at the end of the first term may create disequilibria in the economy which are amplified in the second term through a transmission mechanism resulting in contractionary interventionist policies in a situation where no incentive for re-election exists by the incumbent