Page 40 - Ekonomija i Biznis_noemvri 2016.indd

finance

The analyses by Nasdaq show that the last democratic leaders, Bill Clinton and
movement of prices of shares measured Barack Obama. In the meantime, Her-
through the Dow Jones Industrial Av- bert Hoover and Richard Nixon experi-
erage index generated average return enced the largest decline of stock prices
of almost 9% at an annual level when in the presidential history of the United
the country was run by the Democrats, States and this is mostly due to the Great
against 6% of average increases of shares Depression and the Watergate scandal,
when the Republicans were in power. respectively.
During the election year, the conclusion
is that the market trend has a downward In the focus of the analysts is the rela-
course. The analysts and the experts in tionship of the movement of the global
these processes agree that in regard to capital markets and the election cycle in
this issue, there are no strict and defined the United States. Typically, the global
rules and that the history is not always markets follow the movement and they
indicative for the future events. show similar models of behavior as the
American one, with lower return in the
Observed 182 years back, the stock second year of the election cycle and
exchange trading mostly declines and reduction of instability afterwards. The
increases in accordance with the four- conclusion can be generalized both for
year election cycle. Wars, weak markets the developed markets, as well as for the
and recession tend to emerge in the two capital markets in the developing coun-
years of the mandate, while strong mar- tries.
kets and prosperity are typical of the
second half of the mandate. The series Another conclusion which can be
of data about the Dow Jones Industrial drawn from the specific analyses and re-
Average index in the past 100 years show searches is that the market behavior dur-
that it has been increasing in an average ing the election cycle in general could be
of 10.4 % in the year before the presiden- one of the leading indicators or a form of
tial elections, and almost 6% in average a litmus test to determine whether the
in the election year. Against these data, current ruling party can gain the peo-
in the first and the second year of the ple’s trust once again. Therefrom, when
presidential mandate, the average re- the market realizes increasing and sig-
turns were 2.5% and 4.2%, respectively. nificant return before the elections, usu-
An important exception from this rule is ally the existing option is reelected. This
2008 when the index sank by almost 34%. behavior is quite intuitive taking into

The representatives of the Presiden-
tial Election Cycle theory additionally
confirm the conclusion that the capital
markets were strongest in the third year
of the presidential mandate. However
the disastrous 2008 deviates from the
general conclusion, that the third year
of the presidential mandate is best, the
period when market performances are
measured. On the other hand, the mar-
ket instability tends to develop in the first
year after the elections, until changes
are not digested in the market, whereby
the market tends to generate minimum
results.

In general, during the mandate of only
5 American presidents in history, the
prices of shares increased by more than
50%. The exclusive club includes the

40 November 2016