The Impact of Political Control on U.S. Investment Returns 1926–1999

Abstract

Do small- and large-capitalization stock returns differ when there is Democratic, or Republican, or mixed control of the executive and legislative branches of the United States federal government? Do corporate bonds, intermediate- and long-term government bonds, and Treasury bill returns differ in these cases? The authors test various investment strategies that attempt to capitalize on the effects of control of both executive and legislative branches. The results document the differences in returns in four different holding periods by political control. A strategy based solely on political control of the executive branch has gone out of favor since 1976. The dominant trading rule since then relies on political control of Congress.