An important question faced by every voter on the Election Day is which of the parties is best equipped to foster the development of economy and capital markets. In the pursuit of their own political agenda, the winning party or coalition can fine-tune the fiscal policy and significantly impact on the future economic outcomes. Depending on their political orientation, the objectives of different camps can be quite disparate. As suggested by the partisan theory of Hibbs (1977), left-wing governments tend to cater for the well-being of their working class electorate by targeting unemployment. Right-wing governments, on the other hand, prioritize reduction in inflation so feared by the higher income and occupational status groups.

Several earlier papers focused specifically on the relationship between political orientation of the executive branch of the government and stock market performance. Johnson et al. (1999) and Santa-Clara and Valkanov (2003) report that U.S. stock market returns were higher under Democratic than Republican presidencies, with the difference being particularly large for small stock portfolios. This anomaly can not be explained away by variations in business cycle proxies. Huang (1985) and Hensel and Ziemba (1995) look at whether presidential trading strategies are able to improve investors’ risk-return trade-off.

Our paper adds to the presidential puzzle literature by extending the empirical analysis beyond the U.S. stock market. The data set compiled for this study covers 24 OECD countries and 173 governments. Since elections are relatively infrequent, a multi-country approach allows increasing the number of observations and the power of statistical tests. Furthermore, it provides useful insights to international investors who wonder whether the conclusions obtained from the U.S. data can be generalized in a global context.

The remainder of this letter is organized as follows. The next section describes data sources and sample characteristics. Section III investigates the behavior of stock market indices around the Election Day and throughout the tenure of different administrations. The implications for investors and conclusions are contained in the last section.

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