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Predicting the Presidential Election Cycle in US Stock Prices: Guinea Pigs versus the Pros

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abstract The notion that US stock prices follow a pattern that is synchronized with the rhythm of presidential elections has been a topic among financial investors for a long time. Academic work exists that supports this idea, quantifies the pattern, and has demonstrated its robustness over several decades and across parties in power. This paper takes the existence and robustness of this presidential election cycle for granted and asks whether individuals exploit it when asked to predict stock prices. It considers and contrasts two types of such forecasts: Those made by professionals included in the Livingston survey; and those made by students in a laboratory experiment. One key result is that neither group fares particularly well, though participants in the lab experiment clearly outperformed the professionals.

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type discussion paper (English)
   
keywords Livingston survey, experiment, expectations, forecast, presidential election cycle, stock prices
   
date of appearance 8-4-2008
series of paper 6 (2008)
publisher Department of Economics, University of St. Gallen (St. Gallen)
page(s) 19
review not reviewed
   
citation Gärtner, M. (2008). Predicting the Presidential Election Cycle in US Stock Prices: Guinea Pigs versus the Pros. 6, 2008. St. Gallen: Department of Economics, University of St. Gallen.