U.S. PRESIDENTIAL ELECTIONS: INTERNATIONAL SECURITY-MARKET EFFECTS

John Dobson and Uric B. Dufrene

This paper explores the reaction of various overseas stock markets to U.S. presidential elections. In particular, the paper analyzes the relationship between the S&P 500 and the major London, Tokyo, and Toronto indexes during election versus non-election periods. The results show a significant structural change in the relationship between these markets around a U.S. presidential election. Overseas markets tend to move more in unison with the S&P 500 in the month surrounding this event than they do at any other time. In addition, the degree of correlation appears to be a function of the degree of uncertainty preceding the election outcome. International portfolio managers, therefore, may need to seek additional diversification during election periods due to the co-movement of market averages during these periods.