Title: Gridlock versus harmony: the effect of presidential cycle

Authors: Oumar Sy; Ashraf Al Zaman

Addresses: Faculty of Management, Dalhousie University, Rowe Management Building, Halifax, NS, B3H 3J5, Canada ' Department of Finance, Sobey School of Business, Saint Mary's University, Halifax, NS, B3H 3C3, Canada

Abstract: In this paper, we investigate the impact of the interactions between presidential cycle and political environment on stock returns. We find that neither presidential cycle nor political environment has a significant impact on big firms. In contrast, we find that small firms perform significantly better under Democratic presidencies (relative to Republican presidencies) during harmonies, when one party simultaneously controls the executive and legislative bodies. Our results suggest that the recent evidence by Beyer et al. (2006) that a harmonious political environment is better for small firm investors is true only when the Democrats are in power.

Keywords: political environment; presidential cycles; stock returns; politics; big firms; small firms; Democratic presidencies; Republican presidencies; USA; United States; US presidents.

DOI: 10.1504/IJPAM.2013.054413

International Journal of Portfolio Analysis and Management, 2013 Vol.1 No.3, pp.288 - 298

Available online: 09 Jun 2013 *

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