The Presidential Election Cycle Theory: the case of Czech Republic and Poland

Abstract

The purpose of this study is to verify the occurrence of significant periodicity in the returns obtained in two financial markets of Central and Eastern Europe: Czech Republic and Poland. In the paper are also some novelty in the subject under study is to undertake a two-pronged consideration based on the years of the US presidential election cycle and the local ones taking place in the Czech Republic and Poland, respectively. Based on the annual returns of the broad market index in the Czech Republic (PX) and Poland (WIG) recorded between 1991 and 2024, their values were grouped into individual years of the four-year presidential cycle in the US, and then into the five-year presidential cycles occurring in the two countries studied. Verification of their differentiation was based on the non-parametric Kruskal-Wallis test and the Bonferroni post-hoc test. The highest returns obtained by the PX and WIG indices surveyed were recorded during the first year of the U.S. presidency, and the lowest during the second. As for the presidential cycle in the Czech Republic and Poland, they were characterized by the highest  returns during the second year of the presidency, while the lowest were during year one in the Czech Republic and year four in Poland. However, the results obtained do not indicate the presence of a statistically significant variation in them, which promotes the main hypothesis adopted at the beginning of the study. Some novelty in the subject under study is the undertaking of a two-pronged consideration based on the years of the US presidential election cycle and those taking place in the Czech Republic and Poland, respectively. However, in both cases, no significant differences in annual returns were found.