Does the stock market perform better during Republican or Democratic Presidency? Why? The goal of this project is to examine the relation between political cycles and the stock market. You should provide a short report (not more than 5 pages) developed around the following topics:

1. Use stock market data to examine this assertion empirically. Report the raw as well as risk adjusted performance of the stock market during the Republican and Democratic Presidency. Also, compute the risk measures to examine whether risk differences can explain the differences in the performance. Please define your risk and performance measures clearly. Also, please present your results creatively using graphs, tables, etc.

2. Provide a brief discussion of your empirical findings. Please explain the pattern you observe and provide some conjectures for why these patterns exist. It would be useful if you can provide some evidence (even anecdotal) to support your arguments. Also, please explain whether you think the results you find are economically meaningful.

3. Are there certain types of firms or industries that are more likely to be sensitive to political cycles? Why? Would the returns of those firms be higher or lower during the Democratic Presidency? Please provide some evidence (even anecdotal) to support your conjectures.

4. Can investors take advantage of the opportunity that you have identified? Why or why not?

5. Why don’t arbitrageurs exploit this opportunity? What are some reasons that may limit the role of arbitrageurs?

Data Source: http://mba.tuck.dartmouth.edu/pages/faculty/ken.fr… library.html or http://finance.yahoo.com.