Political power and the stock market

Abstract

In this paper I use monthly US stock market return data from 1926 until 2019 (nominal returns, excess returns and inflation-adjusted returns) to define the way they may correlate with five specifically selected macroeconomic political variables: Protectionism: Negative, Labor Groups: Positive, Right-Left position, Market Economy and Welfare. I also examine the correlation these political variables may have with stock market volatility and the inflation rate, and I also research how the two major US parties have changed in their views on these five matters. The results suggest that, unlike known to literature, the key policy behind greater returns does not seem to be leaning rightwards (partisanship) but negativity towards protectionism. Also the results of political influences to stock market volatility and the inflation rate provide some unexpected outcomes.