No Matter the Winning Presidential Candidate, 'Buying at Halloween and Selling in May' Has Been Attractive for Equities in Pre-Election Years, with the Opposite for Treasuries

Abstract

This study shows that since 1927, investors would have earned a statistically significant excess return of nearly two percent per month by investing in the U.S. equity market from November through April in presidential pre-election years. On the other hand, Treasury bond returns performed inversely to the equity returns, i.e., they have been higher in summer (May to October) months and in other-than-pre-election-years (especially in midterm election years). Our equity results suggest that the previously documented Halloween and pre-election year effects are intertwined. The combined Halloween–pre-election year effect shows up consistently in sub-periods; in an extended sample period since 1871; and in international stock markets. It appears to be separate from a January anomaly; it is independent of the political party in the White House; and it doesn’t appear to be a compensation for higher risk. In contrast, small (value) stocks outperform large (growth) stocks in the November–to–April period in years other than presidential pre-election years. We show that the winter–pre-election year premiums align with the Baker et al. (2016) measure of economic policy uncertainty, and we propose that models of political uncertainty potentially explain both the equity and bond results.