Journal of Finance and Economics
ISSN (Print): 2328-7284 ISSN (Online): 2328-7276 Website: http://www.sciepub.com/journal/jfe Editor-in-chief: Suman Banerjee
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Journal of Finance and Economics. 2017, 5(1), 1-10
DOI: 10.12691/jfe-5-1-1
Open AccessArticle

Political Cycles, Investor Sentiment, and Stock Market Returns

Frederick Adjei1, and Mavis Adjei2

1Economics and Finance Department, Southeast Missouri State University, Cape Girardeau, USA

2Marketing Department, Southern Illinois University Carbondale, Carbondale, USA

Pub. Date: February 04, 2017

Cite this paper:
Frederick Adjei and Mavis Adjei. Political Cycles, Investor Sentiment, and Stock Market Returns. Journal of Finance and Economics. 2017; 5(1):1-10. doi: 10.12691/jfe-5-1-1

Abstract

In this study, we examine the relationships among political cycles, investor sentiment, and stock market returns. We uncover that the variable: change in investor sentiment levels, is a mediator for the relationship between political cycles and stock market returns. We establish that political cycles impact stock market returns through two channels. First, there is a direct impact of fiscal and regulatory policies on corporate fundamentals which is reflected in stock prices, and second, there is an indirect impact through the change in investor sentiment levels which in turn impacts stock prices. Additionally, we empirically examine the relationship between presidential elections cycles and investor sentiment, and find that investor sentiment levels are lower and improve during Democratic presidential terms and are higher and decline during Republican presidential terms.

Keywords:
political cycles investor sentiment stock market returns

Creative CommonsThis work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/

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