Specific features of using the presidential election cycle for forecasting the dominant trend on the US stock market

  • Olga Benenson Open Text Software GmbH, Munich,Germany
Keywords: presidential election cycle, stock market, Dow Jones industrial index, forecasting

Abstract

Purpose – to establish the features of manifestation of the socio-economic cyclical pattern "The cycle of presidential elections" in the US stock market in modern conditions and to develop recommendations for the practical application of this pattern in the investment activities.

Design/Method/Approach of the research. The research was carried out by statistical processing of data on the values of the Dow Jones Industrial Average for the period from 1887 to 2020.

Findings. the research has shown that the regularities in terms of the average increase of the Dow Jones index in different years of the Presidential election cycle in the modern economy are differ from the ones that existed before 1993. At present, only one year can have the practical interest - the year before the US presidential elections, when the average growth of the index is 2-4 times higher than the growth in other years of the cycle. The previously known thesis that the US stock market grows faster under the ruling Democratic Party is also confirmed in the modern economy. Nevertheless, every year the difference between market gains for different years is smoothed out. Within the “Presidential Election Cycle”, there is a consistent pattern that the Dow Jones Index grows from its minimum value in the “interim” year to the maximum value of the next, pre-election year. At the same time, in recent decades, the value of the percentage increase has a tendency to decrease, and if earlier, from 1914 to 2011 its average value was 47-48.6%, then in the period from 1993 to 2020 the percentage of growth decreased to 36.7%.

Practical implications. The practical application of the research results will make it possible to improve the accuracy of forecasting the prevailing trends in the international stock markets and, accordingly, to increase the efficiency of investments.

Originality/Value. This research expands knowledge about the peculiarities of manifestation and use of the cyclical pattern of the "Presidential Election Cycle", offers an updated model of its use in predicting the prevailing trend in the US stock market. The results of the study may be of interest to specialists working in the field of investment in international financial markets.

Research limitations/Future Research. The research results provide a basis for conducting similar research for European and Asian financial markets, as well as identifying and researching other cyclical patterns in international financial markets in order to develop applied investment mechanisms that increase the efficiency of investment.

Paper type – empirical.

Downloads

Download data is not yet available.

References

Afonin, E.A., Bandurka, O.M., & Martynov, A.Yu. (2008). Sotsial'ni tsykly : istoryko-sotsiolohichnyj pidkhid [Social cycles : a historical-sociological approach]. Kharkiv: Tytul (in Ukraine).

Amadeo K., Berry-Johnson B. (2020). Dow Jones Highest Closing Records. Retrieved from: https://www.thebalance.com/dow-jones-closing-history-top-highs-and-lows-since-1929-3306174.

Colby, R.W., A Meyers, T.A. (1988). The encyclopedia of technical market indicators. Dow Jones-Irwin.

Dzhusov, O., Smerichevskyi, S., Sardak, S., & Benenson, O. (2019). Thе application features of seasonal-cyclic patterns in international financial markets. Academy of accounting and financial studies journal, 23(5). Retrieved from: www.abacademies.org/articles/The-Application-Features-of-Seasonal-Cyclic-Patterns-in-International-Financial-Markets-1528-2635-23-5-460.pdf.

Dzhusov, O.A. (2013). Investuvannia na mizhnarodnomu rinku aktsyi: aspect upravlinnya: monography [Investing in the international stock market: management aspect: Monograph]. Dnipropetrovsk, Vid-vo Dnipropetrovskogo natsionalnogo universitetu (in Ukraine).

Hanula, H. (1991). The seasonal cycle. Technical Analysis of Stocks & Commodities, 11, 65–68.

Hirsch J., & Brown T. (2006). The almanac investor. Profit from market history and seasonal trends. Hoboken, New Jersey: John Wiley & Sons, Inc.

Hirsch, J., & Hirsch, Y. (2012). Stock trader’s almanac 2012. Hoboken, New Jersey: John Wiley & Sons, Inc.

Hirsch, J., & Hirsch, Y. (2015). Stock trader’s almanac 2015. Hoboken, New Jersey: John Wiley & Sons, Inc.

Hirsch, J., & Hirsch, Y. (2016). Stock trader’s almanac 2016. Hoboken, New Jersey: John Wiley & Sons, Inc.

Hirsch, J., & Hirsch, Y. (2017). Stock trader’s almanac 2017. Hoboken, New Jersey: John Wiley & Sons, Inc.

Hirsch, J., & Hirsch, Y. (2018). Stock trader’s almanac 2018. Hoboken, New Jersey: John Wiley & Sons, Inc.

Kaeppel, J. (2009). Seasonal stock market trends. The definitive guide to calendar-based stock market trading. Hoboken, New Jersey: John Wiley & Sons, Inc.

Katz, J. O., & McCormik, D. L. (1990). Calendar effects chart. New York: Scientific Consultant Services.

Katz, J. O., & McCormik, D. L. (1997). Lunar cycles and trading. Technical Analysis of Stocks & Commodities, 6, 38–46.

Katz, J. O., & McCormik, D. L. (1997). Seasonality and trading. Technical analysis of stocks & commodities, 4, 50–61.

Meladze, V. (n.d.). Kurs tekhnicheskogo analiza [Technical Analysis Course]. Retrieved from: http://www.parusinvestora.ru/systems/book_meladze/book1_p2.shtm (in Russian).

Merrill A. (1984). The Behavior of Prices on Wall Street.Chappaqua, New York: Analysis Press, 1984.

Poletaev, A. V., & Savel'eva, I. M. (1993). Cikly Kondrat'eva i razvitie kapitalizma (opyt mezhdisciplinarnogo issledovanija) [Kondratieff cycles and the development of capitalism (an experience of interdisciplinary research)]. Moscow: Nauka (in Russian).

Schwager, J. D. (2001). Technical Analysis. Polnyi kurs [Technical analysis. Complete course]. M.:Alpina Publisher (in Russian).

Shabanov D., & Kalachev A.(2008). Tsikl dlinoi v chetire goda [4-year cycle]. Retrieved from: http://fintraining.ru/print.php?sid=2490 (in Russian).

Sincere, M. (n.d. a). How to follow stock-market money flows. Retrieved from: https://michaelsincere.com/what-is-the-market-telling-us/.

Sincere, M. (n.d. b). Three holiday Indicators to Bring your Cheer. Retrieved from: https://michaelsincere.com/three-holiday-indicators-to-bring-you-cheer/.

Published
2020-12-25
How to Cite
Benenson, O. (2020). Specific features of using the presidential election cycle for forecasting the dominant trend on the US stock market. European Journal of Management Issues, 28(4), 127-134. https://doi.org/10.15421/192012