The Impact of the Obama and Trump Presidential Election Cycles on the S and P500

ABSTRACT. The relationship between the US presidential election cycle and the S&P500 index is examined in this paper. We focus our attention on President Barack Obama and President Donald Trump presidential election cycles, as there is a research gap examining these two presidency periods. A comparative study is limited as Obama served two terms in office while Trump only one. Daily data from January 20, 2009 to November 16, 2020 was analysed. The selected dataset covers Obamas two terms and Trumps single term in office to examine cointegration (long-run relationships) and volatility dynamics exhibited by the S&P500. The study is framed around economic and political uncertainty that was captured by the US Economic Policy Uncertainty index (EPU). The ARDL, the LASSO and the GARCH models were implemented to facilitate the analysis of long-run dynamics, and volatility patterns, and to deal with modelling over parameterisation issues. The results suggest the existence of a long-run relationship for both the Obama and Trump administrations, showing that the EPU index could be connected to the behaviour of the S&P500. The long-term association between political uncertainty and the performance of the S&P500 offers insights into the importance of monitoring market volatility during presidential cycles as investors can generate profit and losses derived of markets reactions to the presidential cycle, suggesting the importance of an active portfolio management strategy during times of election. The research findings indicate low-levels of volatility persistence registered during Obamas second presidential cycle. Higher levels of market uncertainty were identified during the first cycle, results that are not surprising, as the Obamas first term in office was impacted by the global economic and financial crisis. This period was characterised by a delicate economic and financial climate, followed by government active intervention to address the effects of the crisis. In the context of the Trump admin- istration, his single term in office was shaken by the outburst of the global health crisis. Volatility persistence levels exhibited during Obama's first term in office were manifest again towards the end of Trump administration, mirroring the impact of the new health crisis and the administration lack of strategy and incoherent approach to the domestic and international impact of COVID-19.