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Abstract

The degree to which stock market movements in emerging/developing democracies follow a political cycle, such as the presidential election cycle (PEC), is a crucial area of research in the field of how the political system affect stock markets.  This relationship's rationalization accords with the Political Business Cycle Theory (PBC) claims regarding the opportunistic policy behavior of elected presidencies in democracies. It attributes its existence to the effect of a presidency's electoral tenure. The relationship has, nevertheless, been determined to be a puzzle, representing the inconsistency between the robust empirical support for the established US stock market but the lack of equivalent findings for other developed democracies or the PBC theories' implications. This study is motivated by the claim that results from stock markets with varying degrees of market efficiency are instructive to address the puzzle. Thus, the study offers insights from the developing Nigerian stock market. It employs multidimensional analysis to look into the PEC in the Nigerian stock market, utilizing regression, time domain, and frequency domain studies. The findings from the time domain analysis and the PEC model of stock returns fail to support that the years of the presidential election tenure cause the differences in average stock returns across the first and second halves of the presidential election term. The study concludes that the evidence fails to support a causal effect of the years of the presidential tenure on the stock market in Nigeria. Political cycle of the form of the PEC do not appear to exist in Nigeria. The study recommends that investors in Nigeria’s stock markets should ignore market timing strategies, such as that based on the PEC pattern in stock market returns, and employ long-term portfolio investment strategies.  

Keywords

Political Cycles Presidential Election Cycle Spectral analysis Time domain analysis GARCH model Nigeria Stock price returns

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How to Cite
MOGBOLU, F., & IGBINEDION, S. O. (2024). POLITICAL CYCLES IN STOCK MARKET RETURN MOVEMENTS IN NIGERIA. JOURNAL OF ECONOMICS AND ALLIED RESEARCH, 9(1), 1–16. Retrieved from https://jearecons.com/index.php/jearecons/article/view/364

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