Presidential cycles and time-varying bond–stock market correlations : evidence from more than two centuries of data

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Authors

Demirer, Riza
Gupta, Rangan

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Journal ISSN

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Publisher

Elsevier

Abstract

Utilizing a DCC-GARCH model to capture time-varying correlations, we show that Democratic administrations are generally associated with lower degree of co-movement between the stock and government bond returns. The findings are in line with the documented presidential cycle effect on stock market returns and corroborate recent evidence that, when risk aversion is high, agents tend to elect the Democratic Party.

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Keywords

Conditional correlation, US presidential cycles, United States (US), Bond and stock returns comovement, Dynamic conditional correlation (DCC), Generalized autoregressive conditional heteroskedasticity (GARCH)

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Citation

Demirer, R. & Gupta, R. 2018, 'Presidential cycles and time-varying bond–stock market correlations : evidence from more than two centuries of data', Economics Letters, vol. 167, pp. 36-39.