The co-authors of the paper discuss their model in the context of the most recent election here: www.chicagobooth.edu/review/the-economy-has-been-great-under-biden-thats-why-trump-won
It's hard to say considering those people also own very little of the stock market. The top 10% wealthiest households own over 90% of the US stock market.
Just as well, democratic voters might think voting is not necessary when the economy is doing very well. Not showing up is also influencing the outcome.
Perception matters but it doesn't beat facts. Even Warren Buffett might believe he isn't rich enough, but that doesn't make it true. Also, most of who voted might not even hold significant % of stocks.
Big thanks to whoever is doing the recent graphics. Nice looking, clear and plenty of context if you want to pause. This might be the best video yet. 🙏🏻
Ben Felix: protecting me from my own weaknesses since 2020. Sometimes I rewatch videos just to remind myself to stay invested and not let emotions or „sixth sense“ mess with my globally diversified low cost index fund.
Excellent video! In Brazil, the best market cycle was from 2002-2012, with the leftist president, who promised to default on the state debt, increase taxes, etc, but failed to deliver. As Ben said, the ERP was very high in 2002 and the shares rose outstanding. Thanks and congratulations Ben.
This feels weird because the parties policies have changed enormously over time. For example the Dixiecrat split and Nixons Southern Strategy. And Clintons neoliberalism.
Thinking more about this, I think it’s the relative position on the political spectrum rather than the specific policies that affect the relationship. From the paper; _Are Democrats more likely to get elected when risk aversion is high? Risk aversion tends to rise in times of economic turmoil (e.g., Guiso et al., 2016), and during such periods, leftwing parties tend to get elected. Broz (2013) examines bank crises in developed countries and finds that left-wing governments are more likely to be elected after financial crashes. Wright (2012) shows that U.S. voters tend to elect Democrats when unemployment is high._
Thanks but the thing that is bothering me is Populism and Anti Globalism. Are these left or right? The Bernie Trump voter for example. The Perot voter in 1992
Very interesting. It makes sense that risk premium is affected by economic factors. And it is these same economic factors that effect which party wins the presidency. Just because there is a correlation between risk premium and presidential elections doesn't mean the one causes the other. Thanks Ben. You Canadians seem to offer great financial information. I'm thinking of your compatriot Richard Coffin of the Plain Bagel.
i'm still figuring out from where all that hair came from *spechless* also glad to see you back making videos.. loved the older videos and certainly will love the new ones!
One key takeaway from these papers is that, this is equity risk premium against short term government bonds, being talked about not raw stock returns, markets are indeed overvalued right now, and they will correct no doubt, so unless you've never considered short term government bonds in the first place, being invested and DCAing in the US equities is best, for the short as well as the long term.
The evidence suggests more left leaning parties get elected when risk aversion is high, so I think it’s more about relative position on the political spectrum than specific policies. Edit to add that, as I understand it, the policy flip was on social not economic policy. Dems continued to be economically left leaning. Their social policies flipped.
Interesting take, Ben, as usual. A Nov 20 NYT opinion piece by Peter Coy referenced a related article published a few days ago in the Chicago Booth Review ("The Economy Has Been Great Under Biden. That’s Why Trump Won." by Lubos Paster and Pietro Veronesi ). Coy uses the article to explore how US voters' level of risk aversion/aggressiveness affects their vote (as you explained) but Coy kind of buries the lead from Paster & Veronesi: "If our argument holds, there’s also a lesson here for investors: Brace for lower-than-usual stock market returns under the new Trump administration." Coy probably didn't didn't emphasize the "stock market return" angle because, like you, he didn't want to encourage market timing...the only thing harder to predict than a US presidential election is the US stock market.
One thing that puzzles me, does it make sense to include emerging markets in a portfolio at all ? Over a long period of time they have consistently delivered a lower total return than developed markets and at the same time being much more volatile causing overall a drag on a portfolio.
Ben, what a wonderful, and above all, objective explanation! I like it how all of your video's seem to end with the consistent conclusion that for most investors, most of the time, a globally diversified, market cap weighted ETF remains the superior solution.
You always have great videos explaining markets and the economy and it always ends in saying the best course of action is getting a world etf. I feel like all this time I am trying to learn the markets and investing is wasted, when the answer is always diversified etfs.
That's an interesting theory within Political Cycles and Stock Returns based on Presidential elections, Allen Lichtmen should update his model based on it
Ben, I imagine this analysis was done using cycles defined as from "inauguration day" rather than election day? Since markets are forward looking, wouldn't it be more fair to study market dynamics from election to election day, rather than from inauguration day to inauguration day? I am curious if that might change the results or if you think it's a more fair way to analyze the data.
I just couldn't get on board with a party that supports puberty blockers and surgical/chemical castration for children, defunding the police, decriminalizing non-violent crime, light sentences, ending bail, oppose voter ID, etc. I'm not a fan of Trump's personality but I think he's the best choice right now to bring common sense back.
Thanks for explaining, now I finally understand US politics - basically if my portfolio tanks after this election then I should blame Canadian investment officers :)
I always suspected the great depression and 2008 crash happening under a republican really weigh down results here for republicans, I never considered voters wanting social support systems in hard times but that makes a lot of sense. Ben, you seem to have an abundance of very relevant and yet rarely known about information about markets. It's incredible how little most people seem to know about markets and their history considering it's like a money machine and who wouldn't wanna know how one of those work.
Not sure about your comment about when Democrats get elected vs when Republicans with regards to this last elections. Exit polls seem to indicated that people cared about cost of living & their personal finances. Maybe the economy is in good shape but a lot of people including middle class are struggling-so why didn't they vote Democrat?
It is always possible that things have changed and the model is no longer relevant. There is, however, a long history in the U.S. and other countries of left leaning parties being generally favored when times are bad. _Are Democrats more likely to get elected when risk aversion is high? Risk aversion tends to rise in times of economic turmoil (e.g., Guiso et al., 2016), and during such periods, leftwing parties tend to get elected. Broz (2013) examines bank crises in developed countries and finds that left-wing governments are more likely to be elected after financial crashes. Wright (2012) shows that U.S. voters tend to elect Democrats when unemployment is high._ "This time is different" are some of the most expensive words in investing. However, I would always be hesitant to put too much faith in a model.
I was hoping you would make a video like this! Please if you see this comment, can you give advice on the ETF VT? Is this good for a stock portfolio? I would really appreciate your advice if you could make a video about the ideal portfolio for US investors and whether we should just follow the market cap weights with VT or should we have a static US/ex-us allocation with home country bias for US stocks still. This would be very helpful! Thank you!!
I wonder if people still have the same faith in center-left parties to provide social insurance. This strikes me as something that has changed in the past decade or so, in both the US and Canada - lots of working class voters have lost faith in the ability of left-wing parties to safeguard them economically. I'm not saying those perceptions are correct, but they certainly seem to be there.
Thanks for the information as always Ben! Recapping, we should stick to owning a market cap weighted index for the long run and should avoid timing the market as it is impossible to do it consistently, even with an information such as this one?
Yes. I had some comments on this in my script but took them out. I'm now wishing I left them in. They validate the model in Australia, Canada, France, Germany, and the UK using U.S. presidential parties as the proxy for global risk aversion. _Table 3 shows that in each of the five countries, average return is higher when a Democrat is in the White House. The Democrat-Republican difference is statistically significant in four of the five countries, ranging from 7.3% to 13.8% per year. These magnitudes are close to those observed for the U.S. This evidence suggests that the outcome of the U.S. election is related to equity risk premia across the globe._
@BenFelixCSI thanks for the reply. Stock markets tend to correlate with each other, so I'm not convinced that international move due to US election. The validation I expect is that FTSE100 return is higher when the Labor party win and is lower when the Conservative party win.
Here was their logic for not doing that: _No large country outside the U.S. has a simple two-party system. Even countries that come closest, such as the UK, have smaller parties that enter into coalitions with the leading parties. Junior coalition partners often have significant bargaining power over government policy._ They do also validate within the U.S. using multiple measures of risk aversion, and they cite evidence that risk aversion globally is related to voters choosing left leaning parties. _Are Democrats more likely to get elected when risk aversion is high? Risk aversion tends to rise in times of economic turmoil (e.g., Guiso et al., 2016), and during such periods, leftwing parties tend to get elected. Broz (2013) examines bank crises in developed countries and finds that left-wing governments are more likely to be elected after financial crashes. Wright (2012) shows that U.S. voters tend to elect Democrats when unemployment is high._
@@BenFelixCSI That's weird because globally people wouldn't be reacting to perceived increased social safety net when Dems are elected. I think I'm not understanding something.
Equity total returns are quite a bit lower under Republicans too. Not sure how the statistical properties compare to the risk premium studied in the paper though.
@@BenFelixCSIIt does seem that this can explain a substantial amount of the result as valuations are implicitly based on discount rates. Which are mainly influenced by treasury rates and Republican presidents such as bush jr and trump have had low interest rates relative to the Taylor rule.
This is great, but couldn't you have made the video before the elections? :) Were you concerned about potentially being seen as interfering with the process?
I'm curious what the data is for a Democrat or Republican controlled Congress since they have the power of the purse. I feel like that's the more important analysis. I'll try to see if that research has been done later, but if anyone has seen previous analysis, please share a link.
Idk if it IS more important. As this election has thrown into relief, sentiment has mattered more politically than actual economic performance. That and the vast majority of people vote exclusively in the general presidential election in response to those perceptions.
Market cap weights are a very good starting point. Some home country bias might make sense. Home country bias: th-cam.com/video/jN8mIHve1Ds/w-d-xo.htmlsi=93bqQX0ggS0mpE2u
We shall see how Mr. Market responds to disruption and uncertainty. Given the continued arbitrage between government debt and lower company taxation, I expect the stock market to continue its march upward. 240% of debt to GDP is the hypothetical breaking point, so we still have slack. Hopefully, no black swans will land on our lake.
Have you looked at the voter turn out? A correlation between risk aversion and voter turnout would strongly support this theory. Democrats always win with higher turnout.
I can't speak to risk aversion, but the "high turnout = Democratic win" correlation broke down in the recent election. This surprised everyone. Republicans now have a slight majority among low-propensity voters.
What I want to know is not, "how can I use information about politics to bring about favored financial outcomes", but rather, "how can I use information about finance to bring about favored political outcomes?" I.e., I'm much more worried about what happens to my country than about what happens to my finances. (And no, I'm not rich, and I do care a great deal about my finances.) My question is: does this theory mean that if I want a certain party to win in the future, that I should advocate for certain economic policies, that would bring that about? Unfortunately I didn't understand this video well enough to guess which policies.
I generally don't tinker with my investments, but I did sell a few percent to do some profit-taking and I put them in safer investments than the stock market. If I'm wrong, I'll lose a bit. If I'm right, I'll gain a bit. It didn't only have to do with Trump; I was getting a bit skeptical of the very high valuations.
It's based on when they are in office. From the paper: _We construct a monthly time series of a Democrat dummy, D, defined as D = 1 if a Democratic president is in office and D = 0 otherwise. We assume that a president is in office until the end of the month in which his term ends. For example, if a new president assumes office on January 20, we assign the month of January to the old president and February to the new president. (Assigning January to the new president leads to very similar results.)_
what about the performance from the day the election result is known? The market is instantly pricing in the next president and future expected returns from this moment.
Great video! And great hair. I wish there would be a "MSCI ACWI IMI ex-USA" ETF to reduce my overall exposure to the US without having to realize my S&P500 gains , but so far no ETF like that exists it seems. The "MSCI ACWI IMI ex-USA" index exists, but for some reason no one created such an ETF. It generally surprises me how many cool ETF ideas are still unexplored.
I was reading it has more to do with the congress' party than the president. There is also a delay and often parties policy shifts slowly into next administration. And other thing to consider is how Republicans are basically a new MAGA party now, way more populist and way more diverse.
Lower taxes and less regulation for sure, but lower taxes mean higher deficits unless they cut social security and Medicare which would lead to an electoral wipeout for the republicans. I also don’t know if I would describe his policies as pro business. It depends on what business. He wants to eliminate the infrastructure projects that are boosting businesses in many rural, underserved communities, and he wants to eliminate the electrical vehicle subsidies that companies are relying on to even the playing field in the electric vehicle market.
Higher taxes do not mean less good economy! Higher taxes usually go to something like infrastructure, or healthcare that again gives jobs AND tax incomes. When you lower taxes you can´t build as much infrastructure, unless you take debt (as happened during Trump, who took more debt than Biden), people have slightly more money, but simplified more are without jobs.
Interesting that there's a correlation at all, much less a political one. Both political sides are neoliberal, neoclassical, valuing fiscal austerity despite deficit fueled derriviatives powering the FX market with the dollars reserve status. Neither party even dares touching these issues, favoring cultural, censorship platforms, but... The executive branch is in charge of the treasury department, who issues new debt into the system (along with the Federal Reserve). So that does make me think, 'yeah... There's probably a correlation. Maybe not major, but def worth a basis point here and there.' Enough to make millions...
Makes sense, BUT most Americans who voted for Trump believe that the economy is not doing well. That makes me question the structure of your model...
The co-authors of the paper discuss their model in the context of the most recent election here: www.chicagobooth.edu/review/the-economy-has-been-great-under-biden-thats-why-trump-won
It's hard to say considering those people also own very little of the stock market. The top 10% wealthiest households own over 90% of the US stock market.
Fool Republican Once, Shame on Chump 😢
Fool Republican Twice, Shame on Republican
@@BenFelixCSI
Just as well, democratic voters might think voting is not necessary when the economy is doing very well. Not showing up is also influencing the outcome.
Perception matters but it doesn't beat facts. Even Warren Buffett might believe he isn't rich enough, but that doesn't make it true.
Also, most of who voted might not even hold significant % of stocks.
Felix you're probably the only person rational enough to predict a market top, but too rational to try. Congrats on the apparent promotion at PWL!
Big thanks to whoever is doing the recent graphics. Nice looking, clear and plenty of context if you want to pause. This might be the best video yet. 🙏🏻
His name is Andrew. I agree he’s doing a great job!
It's a good video visually, but there have been many other videos with better (or at least, more broadly applicable/useful) *content*.
Ayy, Mr. Felix went from associate portfolio manager to chief!
Well deserved, my friend.
I always thought that styling himself as "portfolio manager" was vastly underselling his knowledge and skills.
Now that’s what I’d call a rational reminder
Ben is now taunting us with his plethora of hair. Dude was cool with a bald head, now even cooler.
His hair is unaffected by any risk premium
bro is handsome af no lie
Did he get buff also??
Naah , he gave bald man lots of false hope!
At first, I thought it was Michael Milken before he went to prison in the video.
All together now: "stay invested in a low cost diversified portfolio and resist the temptation to tinker"
Ben Felix: protecting me from my own weaknesses since 2020. Sometimes I rewatch videos just to remind myself to stay invested and not let emotions or „sixth sense“ mess with my globally diversified low cost index fund.
+1
Expected hair gainz through the roof!
Let's make the hair thing a persistent inside joke that will follow Ben for the rest of his life
They seem to already be at all time highs to me.
They did an amazing job on the hair transplant.
😂
Ben says he just stopped shaving it
as usual - insightful data synthesis and great presentation skills. Thank you, Ben.
I was not ready for that hair jumpscare.
I'm just here for the hair comments.
Having a bad “hair day” are you?
Congratulations on the promotion, well deserved. Great video as always - thank you for sharing your insights.
A friend of mine went 100% to cash when Trump came in the first time. This time he's learned to stop doing something and just stand there.
You should overlay returns based not only on Presidency, but US Congress by party as well
I think a MEGA president is not the same as a GOP president.
Excellent video! In Brazil, the best market cycle was from 2002-2012, with the leftist president, who promised to default on the state debt, increase taxes, etc, but failed to deliver. As Ben said, the ERP was very high in 2002 and the shares rose outstanding. Thanks and congratulations Ben.
This feels weird because the parties policies have changed enormously over time. For example the Dixiecrat split and Nixons Southern Strategy. And Clintons neoliberalism.
Interesting point.
This is potentially a BIG point
Thinking more about this, I think it’s the relative position on the political spectrum rather than the specific policies that affect the relationship. From the paper;
_Are Democrats more likely to get elected when risk aversion is high? Risk aversion tends to rise in times of economic turmoil (e.g., Guiso et al., 2016), and during such periods, leftwing parties tend to get elected. Broz (2013) examines bank crises in developed countries and finds that left-wing governments are more likely to be elected after financial crashes. Wright (2012) shows that U.S. voters tend to elect Democrats when unemployment is high._
Thanks but the thing that is bothering me is Populism and Anti Globalism. Are these left or right? The Bernie Trump voter for example. The Perot voter in 1992
That "Southern strategy" thing is a myth. Democrats are keeping the plantation running now with welfare to harvest votes.
Thanks for pointing out this paper Ben. Great reading for my flight today
Very interesting. It makes sense that risk premium is affected by economic factors. And it is these same economic factors that effect which party wins the presidency. Just because there is a correlation between risk premium and presidential elections doesn't mean the one causes the other. Thanks Ben. You Canadians seem to offer great financial information. I'm thinking of your compatriot Richard Coffin of the Plain Bagel.
Thank you for the impartial advice.
Great diversification of your facial expressions on your recent video thumbnails! Very insightful content 👍
i'm still figuring out from where all that hair came from *spechless*
also glad to see you back making videos.. loved the older videos and certainly will love the new ones!
As always, thank you for your rational viewpoint!
One key takeaway from these papers is that, this is equity risk premium against short term government bonds, being talked about not raw stock returns, markets are indeed overvalued right now, and they will correct no doubt, so unless you've never considered short term government bonds in the first place, being invested and DCAing in the US equities is best, for the short as well as the long term.
Great POV. Makes sense when also factoring in the extremely unprecedented policies Trump will implement.
BOOOOOM: MIND BLOWN🤯🤯
Its going to be a great video
What about party realignment in the 60s and 70s?
The evidence suggests more left leaning parties get elected when risk aversion is high, so I think it’s more about relative position on the political spectrum than specific policies.
Edit to add that, as I understand it, the policy flip was on social not economic policy. Dems continued to be economically left leaning. Their social policies flipped.
Ben as usual superb content, I’m a big fan
Interesting take, Ben, as usual. A Nov 20 NYT opinion piece by Peter Coy referenced a related article published a few days ago in the Chicago Booth Review ("The Economy Has Been Great Under Biden. That’s Why Trump Won." by Lubos Paster and Pietro Veronesi ). Coy uses the article to explore how US voters' level of risk aversion/aggressiveness affects their vote (as you explained) but Coy kind of buries the lead from Paster & Veronesi: "If our argument holds, there’s also a lesson here for investors: Brace for lower-than-usual stock market returns under the new Trump administration." Coy probably didn't didn't emphasize the "stock market return" angle because, like you, he didn't want to encourage market timing...the only thing harder to predict than a US presidential election is the US stock market.
Those are the same authors as the paper I referenced in the video! We also had Lubos on our podcast a while ago.
@@BenFelixCSI Oops, sorry I missed that reference at min 8:39. Will have to listen back on the Lubos podcast episode, too!
One thing that puzzles me, does it make sense to include emerging markets in a portfolio at all ? Over a long period of time they have consistently delivered a lower total return than developed markets and at the same time being much more volatile causing overall a drag on a portfolio.
Investing in Emerging Markets
th-cam.com/video/DEV49qY0TP8/w-d-xo.html
How often do clients ask you about your decision to stop underweighting hair?
Ben, what a wonderful, and above all, objective explanation! I like it how all of your video's seem to end with the consistent conclusion that for most investors, most of the time, a globally diversified, market cap weighted ETF remains the superior solution.
Congratulations on the promotion - as always your content is amazing
You need to update your channel description with your new title!
True!
Super interesting, thanks
You always have great videos explaining markets and the economy and it always ends in saying the best course of action is getting a world etf. I feel like all this time I am trying to learn the markets and investing is wasted, when the answer is always diversified etfs.
People need to be reminded to do nothing. Evidence suggests it's not so easy for most people to do.
Can similar behaviour be found north of the border? Do canadians tend to vote Liberal when they're feeling risk-averse?
Yes! Someone in my podcast online community ran those numbers. Same result.
@BenFelixCSI Thanks! Interesting stuff, glad you made a video on it.
Ben Felix is my favourite
That's an interesting theory within Political Cycles and Stock Returns based on Presidential elections, Allen Lichtmen should update his model based on it
In Ben Felix we trust.
Great video Felix, thanks!
Ben, I imagine this analysis was done using cycles defined as from "inauguration day" rather than election day? Since markets are forward looking, wouldn't it be more fair to study market dynamics from election to election day, rather than from inauguration day to inauguration day? I am curious if that might change the results or if you think it's a more fair way to analyze the data.
Fool Republican Once, Shame on Chump 😢
Fool Republican Twice, Shame on Republican
I just couldn't get on board with a party that supports puberty blockers and surgical/chemical castration for children, defunding the police, decriminalizing non-violent crime, light sentences, ending bail, oppose voter ID, etc. I'm not a fan of Trump's personality but I think he's the best choice right now to bring common sense back.
Thanks for explaining, now I finally understand US politics - basically if my portfolio tanks after this election then I should blame Canadian investment officers :)
You’re telling me this guy is not only smart with great hair, but is also 6’10???
He also has four kids, owns a house in Ontario and is only 35.
Gigachad confirmed.
@@democrrrracymanifest thank goodness this guy is married or it would be over for all of our wives
Stay the course, got it
Just when you think you've learnt everything about markets...
I always suspected the great depression and 2008 crash happening under a republican really weigh down results here for republicans, I never considered voters wanting social support systems in hard times but that makes a lot of sense. Ben, you seem to have an abundance of very relevant and yet rarely known about information about markets. It's incredible how little most people seem to know about markets and their history considering it's like a money machine and who wouldn't wanna know how one of those work.
Blud is mad knowledgeable!!
Not sure about your comment about when Democrats get elected vs when Republicans with regards to this last elections. Exit polls seem to indicated that people cared about cost of living & their personal finances.
Maybe the economy is in good shape but a lot of people including middle class are struggling-so why didn't they vote Democrat?
Stock valuations suggest low risk aversion, but you’re right, there are many other measures I did not look at.
I see this is similar to a question below about a shift in last 10 years of people not trusting centre left parties to help them financially.
It is always possible that things have changed and the model is no longer relevant. There is, however, a long history in the U.S. and other countries of left leaning parties being generally favored when times are bad.
_Are Democrats more likely to get elected when risk aversion is high? Risk aversion tends to rise in times of economic turmoil (e.g., Guiso et al., 2016), and during such periods, leftwing parties tend to get elected. Broz (2013) examines bank crises in developed countries and finds that left-wing governments are more likely to be elected after financial crashes. Wright (2012) shows that U.S. voters tend to elect Democrats when unemployment is high._
"This time is different" are some of the most expensive words in investing. However, I would always be hesitant to put too much faith in a model.
When I grew up, I wanna be like this guy.
What’s up Chief!
I was hoping you would make a video like this! Please if you see this comment, can you give advice on the ETF VT? Is this good for a stock portfolio? I would really appreciate your advice if you could make a video about the ideal portfolio for US investors and whether we should just follow the market cap weights with VT or should we have a static US/ex-us allocation with home country bias for US stocks still. This would be very helpful! Thank you!!
Talk to us about our political parties Ban
🎉🎉🎉🎉🎉🎉🎉
Good stuff Ben!
Congrats with your new role 🎉
so you went from Mech E into Finance eh? That's really cool you should make a video on education
Everyone is just commenting on the hair 😂😅
Smart man, he displayed below his means in youth and now.....
This looks like AI Ben
I wonder if people still have the same faith in center-left parties to provide social insurance. This strikes me as something that has changed in the past decade or so, in both the US and Canada - lots of working class voters have lost faith in the ability of left-wing parties to safeguard them economically. I'm not saying those perceptions are correct, but they certainly seem to be there.
That’s an interesting question.
Shorting the entire United States at this point
I hope you didn't short at the end of 2016.
Under Trump we seem to be going to the Moon right now! Not a fan of his, but a fan of his returns :)
Oh, question: is there a pattern related to small cap value equities? Are their risk premia likely to go down like the rest of the market’s?
Thanks for the information as always Ben! Recapping, we should stick to owning a market cap weighted index for the long run and should avoid timing the market as it is impossible to do it consistently, even with an information such as this one?
I think that’s a pretty good summary. Maybe one important addition is to be cautious of extrapolating recent past returns into the future.
@BenFelixCSI Noted. Thank you!
Do the authors validate this pattern with other markets outside the US to avoid data overfitting?
Yes. I had some comments on this in my script but took them out. I'm now wishing I left them in. They validate the model in Australia, Canada, France, Germany, and the
UK using U.S. presidential parties as the proxy for global risk aversion.
_Table 3 shows that in each of the five countries, average return is higher when a Democrat is in the White House. The Democrat-Republican difference is statistically significant in four of the five countries, ranging from 7.3% to 13.8% per year. These magnitudes are close to those observed for the U.S. This evidence suggests that the outcome of the U.S. election is related to equity risk premia across the globe._
@BenFelixCSI thanks for the reply. Stock markets tend to correlate with each other, so I'm not convinced that international move due to US election. The validation I expect is that FTSE100 return is higher when the Labor party win and is lower when the Conservative party win.
@@BenFelixCSIAwesome 👌
Here was their logic for not doing that:
_No large country outside the U.S. has a simple two-party system. Even countries that come closest, such as the UK, have smaller parties that enter into coalitions with the leading parties. Junior coalition partners often have significant bargaining power over government policy._
They do also validate within the U.S. using multiple measures of risk aversion, and they cite evidence that risk aversion globally is related to voters choosing left leaning parties.
_Are Democrats more likely to get elected when risk aversion is high? Risk aversion tends to rise in times of economic turmoil (e.g., Guiso et al., 2016), and during such periods, leftwing parties tend to get elected. Broz (2013) examines bank crises in developed countries and finds that left-wing governments are more likely to be elected after financial crashes. Wright (2012) shows that U.S. voters tend to elect Democrats when unemployment is high._
@@BenFelixCSI That's weird because globally people wouldn't be reacting to perceived increased social safety net when Dems are elected. I think I'm not understanding something.
would this say as much about treasury rates as about stock returns?
Equity total returns are quite a bit lower under Republicans too. Not sure how the statistical properties compare to the risk premium studied in the paper though.
@@BenFelixCSIIt does seem that this can explain a substantial amount of the result as valuations are implicitly based on discount rates. Which are mainly influenced by treasury rates and Republican presidents such as bush jr and trump have had low interest rates relative to the Taylor rule.
This time he said invest in a self balancing low cost etf. Not just a broad market etf?
Is there good information on rebalancing? How, when, and is it necessary at all?
So far, the market hasn't gotten your memo.
Actually, what's happening in the market now quite literally mirrors what was possited at the moment.
Did you notice that ben was larger than all presidents (photo was bigger too)? And he had nicer hair and a tighter shirt? Yup, vote for ben. Lol
Dam,the cut is fine,looking good bro.
This is great, but couldn't you have made the video before the elections? :)
Were you concerned about potentially being seen as interfering with the process?
I'm curious what the data is for a Democrat or Republican controlled Congress since they have the power of the purse. I feel like that's the more important analysis. I'll try to see if that research has been done later, but if anyone has seen previous analysis, please share a link.
Idk if it IS more important. As this election has thrown into relief, sentiment has mattered more politically than actual economic performance. That and the vast majority of people vote exclusively in the general presidential election in response to those perceptions.
@BenFelixCSI - any thoughts on what percentage range should be in ex-US (total international) index fund?
Market cap weights are a very good starting point. Some home country bias might make sense.
Home country bias: th-cam.com/video/jN8mIHve1Ds/w-d-xo.htmlsi=93bqQX0ggS0mpE2u
@@BenFelixCSI thanks!
Bens amount of hair is disturbing me more than Buffets cash reserve
Video on Buffett coming soon. Maybe you will reevaluate.
@@BenFelixCSIlook forward to it!
We shall see how Mr. Market responds to disruption and uncertainty. Given the continued arbitrage between government debt and lower company taxation, I expect the stock market to continue its march upward. 240% of debt to GDP is the hypothetical breaking point, so we still have slack. Hopefully, no black swans will land on our lake.
How much do .. uhm… policy carry-over affect this?
Have you looked at the voter turn out? A correlation between risk aversion and voter turnout would strongly support this theory. Democrats always win with higher turnout.
I have not but that would be really interesting.
I can't speak to risk aversion, but the "high turnout = Democratic win" correlation broke down in the recent election. This surprised everyone. Republicans now have a slight majority among low-propensity voters.
Not anymore. In the recent election, low-propensity voters were mostly Republican.
What I want to know is not, "how can I use information about politics to bring about favored financial outcomes", but rather, "how can I use information about finance to bring about favored political outcomes?" I.e., I'm much more worried about what happens to my country than about what happens to my finances. (And no, I'm not rich, and I do care a great deal about my finances.) My question is: does this theory mean that if I want a certain party to win in the future, that I should advocate for certain economic policies, that would bring that about? Unfortunately I didn't understand this video well enough to guess which policies.
I generally don't tinker with my investments, but I did sell a few percent to do some profit-taking and I put them in safer investments than the stock market. If I'm wrong, I'll lose a bit. If I'm right, I'll gain a bit. It didn't only have to do with Trump; I was getting a bit skeptical of the very high valuations.
How do you calculate the stock market performance? From the day the assumed office or from the daybthe election results are known?
It's based on when they are in office. From the paper:
_We construct a monthly time series of a Democrat dummy, D, defined as D = 1 if a Democratic president is in office and D = 0 otherwise. We assume that a president is in office until the end of the month in which his term ends. For example, if a new president assumes office on January 20, we assign the month of January to the old president and February to the new president. (Assigning January to the new president leads to very similar results.)_
what about the performance from the day the election result is known? The market is instantly pricing in the next president and future expected returns from this moment.
Agree that would be interesting to look at.
@@BenFelixCSI Hey! Who are you calling a Democrat dummy? ;)
Interesting as I'm already shifting my portfolio to have a higher international equity portion because I'm moving into xeqt rather than vgro
Great video! And great hair. I wish there would be a "MSCI ACWI IMI ex-USA" ETF to reduce my overall exposure to the US without having to realize my S&P500 gains , but so far no ETF like that exists it seems. The "MSCI ACWI IMI ex-USA" index exists, but for some reason no one created such an ETF. It generally surprises me how many cool ETF ideas are still unexplored.
c'est le top
Hey Ben let's ask the important question: where do I get that shirt?
lululemon in ~2019.
Fascinating video. And great hair 👍🏻
This is merely a guess based on extremely broad generalizations rather than based on the candidate himself. Seems almost useless to me.
Crazy how a hair cut can carry hard. Looking good mate 😊
Ben's looking swole af
I was reading it has more to do with the congress' party than the president. There is also a delay and often parties policy shifts slowly into next administration. And other thing to consider is how Republicans are basically a new MAGA party now, way more populist and way more diverse.
Sorry, but until like 2020, wasn’t public perception that republicans had a higher stock return
No. The Presidential Puzzle was published in 2003.
Lower taxes and less regulation for sure, but lower taxes mean higher deficits unless they cut social security and Medicare which would lead to an electoral wipeout for the republicans. I also don’t know if I would describe his policies as pro business. It depends on what business. He wants to eliminate the infrastructure projects that are boosting businesses in many rural, underserved communities, and he wants to eliminate the electrical vehicle subsidies that companies are relying on to even the playing field in the electric vehicle market.
How will trumps tariffs affectn u.s. stocks
Oh no, Ben, please tell me it's a wig
100% all natural human hair from my own follicles.
Higher taxes do not mean less good economy! Higher taxes usually go to something like infrastructure, or healthcare that again gives jobs AND tax incomes. When you lower taxes you can´t build as much infrastructure, unless you take debt (as happened during Trump, who took more debt than Biden), people have slightly more money, but simplified more are without jobs.
when the economy seems good people vote for the greedy party, when economy seems bad people vote for the handout party.
Interesting that there's a correlation at all, much less a political one. Both political sides are neoliberal, neoclassical, valuing fiscal austerity despite deficit fueled derriviatives powering the FX market with the dollars reserve status. Neither party even dares touching these issues, favoring cultural, censorship platforms, but...
The executive branch is in charge of the treasury department, who issues new debt into the system (along with the Federal Reserve). So that does make me think, 'yeah... There's probably a correlation. Maybe not major, but def worth a basis point here and there.' Enough to make millions...