An election bounce for stocks?

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From Mac Bank:

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  • We find that the Australian market typically has stronger returns in the months following an election. There have been stronger returns when there is a change in government as the market adjusts its policy expectations. We show below the historical results to such an event since 1940.
  • It must be noted, however, that there have only been five changes of government since 1970 and findings could be impacted by time periods with potentially very different economic and financial conditions. Returns to All Ordinaries around Federal elections since 1940
  • The trend is similar when looking across all elections but less pronounced as a re-election of an incumbent government is less likely to lead to significant changes in policy or direction.
  • The Australian market has also underperformed global markets on average in the month leading up to a change in government, and then outperform in the 6 months following.
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  • This may be associated with higher uncertainty prior to election and a firming of expectation post election.
  • We also show on the left the historic returns around elections split by which party takes Government. In periods when the Liberal Party is re-elected or wins (11 events), the average return of the Australian market is 2.05% in the three months following an election. When the Labor party is re-elected or wins (9 events) the average return of the Australian market is -4.74% over a similar period.
About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.