The Influence of U.S. Presidential Elections on Exchange Rates Dr. Dean Frear Wilkes University Wilkes-Barre, Pennsylvania...
Introduction <ul><li>Political events  </li></ul><ul><ul><li>Presidential and parliamentary elections &quot;create panic a...
Research Question <ul><li>What is the influence on the exchange rates prior to and just after the Presidential election? <...
Exchange Rate Influence Background <ul><li>Purchasing power parity </li></ul><ul><ul><li>compares prices in countries of s...
Literature Review <ul><li>Literature is scarce </li></ul><ul><li>Foreign market exchange rate fluctuations and trade flows...
Methodology <ul><li>The Presidential Cycle </li></ul><ul><li>Year 1, week 3: Inauguration </li></ul><ul><li>Year 4, weeks ...
Data <ul><li>Exchange rates from the years 1987-2006 between the United States Dollar (USD) and </li></ul><ul><ul><li>the ...
U.S. Presidential Election Timeline Intentions for candidacy stated Adjustment period for ‘new’ presidential candidate Yea...
Data <ul><li>Exchange rates from the years 1987-2006 between the United States Dollar (USD) and </li></ul><ul><ul><li>the ...
<ul><li>Increase in percent change in exchange rate in Qtr 3  </li></ul><ul><li>(quarter preceding election quarter) </li>...
<ul><li>Increase in percent change in exchange rate in Qtr 3  </li></ul><ul><li>(quarter preceding election quarter) </li>...
<ul><li>Increase in percent change in exchange rate in Qtr 3  </li></ul><ul><li>(quarter preceding election quarter) </li>...
<ul><li>Regular variation =  ±0.10%   </li></ul><ul><li>(seen for each exchange rate) </li></ul><ul><ul><li>Variability in...
<ul><li>Regular variation =  ±0.10%   </li></ul><ul><li>(seen for each exchange rate) </li></ul><ul><ul><li>Variability in...
<ul><li>Regular variation =  ±0.10%   </li></ul><ul><li>(seen for each exchange rate) </li></ul><ul><ul><li>Variability in...
Hypothesis Testing <ul><li>VERIFICATION OF DATA CONSISTENCY </li></ul><ul><ul><li>Null hypothesis - All quarters (and week...
Hypothesis Testing <ul><li>VERIFICATION OF DATA CONSISTENCY </li></ul><ul><li>IMPACT OF PRESIDENTIAL CYCLE </li></ul><ul><...
Findings by Quarter <ul><li>All quarters are the same </li></ul><ul><ul><li>Null: μ Q1  = μ Q2  = μ Q3  = μ Q4 </li></ul><...
Findings by Quarter <ul><li>All quarters are the same </li></ul><ul><ul><li>Null: μ Q1  = μ Q2  = μ Q3  = μ Q4 </li></ul><...
Findings by Quarter <ul><li>All quarters are the same </li></ul><ul><ul><li>Null: μ Q1  = μ Q2  = μ Q3  = μ Q4 </li></ul><...
Findings by Week <ul><li>All weeks are the same </li></ul><ul><ul><li>Null: μ week1  = … = μ week53 </li></ul></ul><ul><ul...
Findings by Week <ul><li>All weeks are the same </li></ul><ul><ul><li>Null: μ week1  = … = μ week53 </li></ul></ul><ul><ul...
Findings by Week <ul><li>All weeks are the same </li></ul><ul><ul><li>Null: μ week1  = … = μ week53 </li></ul></ul><ul><ul...
The Presidential Cycle Year 1, week 3: Inauguration Year 4, weeks 5-25: Primary Elections* Year 4, weeks 34-38: Political ...
The Presidential Cycle Year 1, week 3: Inauguration Year 4, weeks 5-25: Primary Elections* Year 4, weeks 34-38: Political ...
The Presidential Cycle Year 1, week 3: Inauguration Year 4, weeks 5-25: Primary Elections* Year 4, weeks 34-38: Political ...
Conclusion <ul><li>We examined the significance of the impact of time of the year and other activities in the presidential...
Conclusion <ul><li>Increase in the quarterly exchange rate just before election time but are not significant. except for t...
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The influence of US presidential elections on exchange rates

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The influence of US presidential elections on exchange rates

  1. 1. The Influence of U.S. Presidential Elections on Exchange Rates Dr. Dean Frear Wilkes University Wilkes-Barre, Pennsylvania Dr. Jennifer Edmonds Wilkes University Wilkes-Barre, Pennsylvania
  2. 2. Introduction <ul><li>Political events </li></ul><ul><ul><li>Presidential and parliamentary elections &quot;create panic among foreign investor&quot; </li></ul></ul><ul><li>Small economies may be affected more </li></ul>
  3. 3. Research Question <ul><li>What is the influence on the exchange rates prior to and just after the Presidential election? </li></ul>
  4. 4. Exchange Rate Influence Background <ul><li>Purchasing power parity </li></ul><ul><ul><li>compares prices in countries of similar goods. </li></ul></ul><ul><li>The balance of payments </li></ul><ul><ul><li>Focuses on the balance of payments on the current account and long term capita </li></ul></ul><ul><li>Monetary approach </li></ul><ul><ul><li>Theory of supply and demand </li></ul></ul><ul><ul><li>Supply being controlled by the country </li></ul></ul><ul><ul><li>Demand being influenced by the interest rate for borrowers. </li></ul></ul><ul><li>Portfolio balance approach </li></ul><ul><li>Monetary approach plus bonds and foreign debt </li></ul>
  5. 5. Literature Review <ul><li>Literature is scarce </li></ul><ul><li>Foreign market exchange rate fluctuations and trade flows </li></ul><ul><li>Political risk and foreign exchange rates </li></ul><ul><li>Foreign political cycle influence </li></ul>
  6. 6. Methodology <ul><li>The Presidential Cycle </li></ul><ul><li>Year 1, week 3: Inauguration </li></ul><ul><li>Year 4, weeks 5-25: Primary Elections </li></ul><ul><li>Year 4, weeks 34-38: Political Conventions </li></ul><ul><li>Year 4, week 46: Presidential Election </li></ul>Intentions for candidacy stated Adjustment period for ‘new’ presidential candidate Year 1 Year 2 Year 3 Year 4 conventions Primary elections
  7. 7. Data <ul><li>Exchange rates from the years 1987-2006 between the United States Dollar (USD) and </li></ul><ul><ul><li>the European Union (EUR)* </li></ul></ul><ul><ul><li>England (GBP) </li></ul></ul><ul><ul><li>Japan (JPY) </li></ul></ul><ul><li>* Data only available between 1999 and the present. </li></ul>
  8. 8. U.S. Presidential Election Timeline Intentions for candidacy stated Adjustment period for ‘new’ presidential candidate Year 1 Year 2 Year 3 Year 4 conventions Primary elections Daily observations of exchange rates
  9. 9. Data <ul><li>Exchange rates from the years 1987-2006 between the United States Dollar (USD) and </li></ul><ul><ul><li>the European Union (EUR)* </li></ul></ul><ul><ul><li>England (GBP) </li></ul></ul><ul><ul><li>Japan (JPY) </li></ul></ul><ul><li>Percent change (growth) of the daily exchange </li></ul><ul><ul><li>Quarterly averages </li></ul></ul><ul><ul><li>Weekly averages </li></ul></ul><ul><li>* Data only available between 1999 and the present. </li></ul>
  10. 10. <ul><li>Increase in percent change in exchange rate in Qtr 3 </li></ul><ul><li>(quarter preceding election quarter) </li></ul><ul><li>(seen for each exchange rate) </li></ul>
  11. 11. <ul><li>Increase in percent change in exchange rate in Qtr 3 </li></ul><ul><li>(quarter preceding election quarter) </li></ul><ul><li>(seen for each exchange rate) </li></ul>
  12. 12. <ul><li>Increase in percent change in exchange rate in Qtr 3 </li></ul><ul><li>(quarter preceding election quarter) </li></ul><ul><li>(seen for each exchange rate) </li></ul>
  13. 13. <ul><li>Regular variation = ±0.10% </li></ul><ul><li>(seen for each exchange rate) </li></ul><ul><ul><li>Variability increases in election years </li></ul></ul>(even more so in USD -> EUR)
  14. 14. <ul><li>Regular variation = ±0.10% </li></ul><ul><li>(seen for each exchange rate) </li></ul><ul><ul><li>Variability increases in election years </li></ul></ul>(even more so in USD -> EUR)
  15. 15. <ul><li>Regular variation = ±0.10% </li></ul><ul><li>(seen for each exchange rate) </li></ul><ul><ul><li>Variability increases in election years </li></ul></ul>(even more so in USD -> EUR)
  16. 16. Hypothesis Testing <ul><li>VERIFICATION OF DATA CONSISTENCY </li></ul><ul><ul><li>Null hypothesis - All quarters (and weeks) within election years (and non-election years) are no different </li></ul></ul><ul><ul><ul><li>A series of one-way analysis of variance (ANOVA) tests </li></ul></ul></ul><ul><ul><li>Null hypothesis - No election year is different that any other election year (by quarters and weeks) , and conversely that no non-election year is any different than any other non-election year </li></ul></ul><ul><ul><ul><li>A series of one-way analysis of variance (ANOVA) tests </li></ul></ul></ul>
  17. 17. Hypothesis Testing <ul><li>VERIFICATION OF DATA CONSISTENCY </li></ul><ul><li>IMPACT OF PRESIDENTIAL CYCLE </li></ul><ul><ul><li>Null hypothesis - A particular quarter (or week) in one year is no different than that particular quarter (or week) in any other year (or combination of years) </li></ul></ul><ul><ul><ul><li>A series of two-tailed t-tests. </li></ul></ul></ul><ul><ul><li>All tests were examined at the 0.10 significance level </li></ul></ul>
  18. 18. Findings by Quarter <ul><li>All quarters are the same </li></ul><ul><ul><li>Null: μ Q1 = μ Q2 = μ Q3 = μ Q4 </li></ul></ul><ul><ul><li>(EYs, nEYs) </li></ul></ul><ul><li>All years are the same </li></ul><ul><ul><li>Null: μ 1987 = … = μ 2006 </li></ul></ul><ul><ul><li>(EYs, nEYs) </li></ul></ul><ul><li>EY vs. nEY </li></ul><ul><ul><li>Null: μ Qi-EY = μ Qi-nEY </li></ul></ul><ul><ul><li>(for each quarter) </li></ul></ul>Values shown are p-values from corresponding hypothesis tests. USD ->EUR (1999-2006) USD ->GBP (1987-2006) USD ->JPY (1987-2006) EY: 0.088 0.815 0.802 nEY: 0.384 0.109 0.736 0.418 + 0.442 0.669 0.052* 0.127 0.682 Q1: 0.827 0.970 0.606 Q2: 0.684 0.672 0.283 Q3: 0.174 0.009** ++ 0.625 Q4: 0.146 0.982 0.786
  19. 19. Findings by Quarter <ul><li>All quarters are the same </li></ul><ul><ul><li>Null: μ Q1 = μ Q2 = μ Q3 = μ Q4 </li></ul></ul><ul><ul><li>(EYs, nEYs) </li></ul></ul><ul><li>All years are the same </li></ul><ul><ul><li>Null: μ 1987 = … = μ 2006 </li></ul></ul><ul><ul><li>(EYs, nEYs) </li></ul></ul><ul><li>EY vs. nEY </li></ul><ul><ul><li>Null: μ Qi-EY = μ Qi-nEY </li></ul></ul><ul><ul><li>(for each quarter) </li></ul></ul>Values shown are p-values from corresponding hypothesis tests. USD ->EUR (1999-2006) USD ->GBP (1987-2006) USD ->JPY (1987-2006) EY: 0.088 0.815 0.802 nEY: 0.384 0.109 0.736 EY: 0.418 0.442 0.669 nEY: 0.052 0.127 0.682 Q1: 0.827 0.970 0.606 Q2: 0.684 0.672 0.283 Q3: 0.174 0.009** ++ 0.625 Q4: 0.146 0.982 0.786
  20. 20. Findings by Quarter <ul><li>All quarters are the same </li></ul><ul><ul><li>Null: μ Q1 = μ Q2 = μ Q3 = μ Q4 </li></ul></ul><ul><ul><li>(EYs, nEYs) </li></ul></ul><ul><li>All years are the same </li></ul><ul><ul><li>Null: μ 1987 = … = μ 2006 </li></ul></ul><ul><ul><li>(EYs, nEYs) </li></ul></ul><ul><li>EY vs. nEY </li></ul><ul><ul><li>Null: μ Qi-EY = μ Qi-nEY </li></ul></ul><ul><ul><li>(for each quarter) </li></ul></ul><ul><li>Increase in percent change in exchange rate in Qtr 3 </li></ul><ul><li>… only significant for the USD -> GBP exchange </li></ul>Values shown are p-values from corresponding hypothesis tests. USD ->EUR (1999-2006) USD ->GBP (1987-2006) USD ->JPY (1987-2006) EY: 0.088 0.815 0.802 nEY: 0.384 0.109 0.736 EY: 0.418 0.442 0.669 nEY: 0.052 0.127 0.682 Q1: 0.827 0.970 0.606 Q2: 0.684 0.672 0.283 Q3: 0.174 0.009 0.625 Q4: 0.146 0.982 0.786
  21. 21. Findings by Week <ul><li>All weeks are the same </li></ul><ul><ul><li>Null: μ week1 = … = μ week53 </li></ul></ul><ul><ul><li>(EYs, nEYs) </li></ul></ul><ul><li>All years are the same </li></ul><ul><ul><li>Null: μ 1987 = … = μ 2006 </li></ul></ul><ul><ul><li>(EYs, nEYs) </li></ul></ul><ul><li>EY vs. nEY </li></ul><ul><ul><li>Null: μ Qi-EY = μ Qi-nEY </li></ul></ul><ul><ul><li>(for each quarter) </li></ul></ul>Values shown are p-values from corresponding hypothesis tests. USD ->EUR (1999-2006) USD ->GBP (1987-2006) USD ->JPY (1987-2006) EY: 0.006 0.300 0.496 nEY: 0.666 0.253 0.211 0.418 + 0.442 0.669 0.052* 0.127 0.682 Q1: 0.827 0.970 0.606 Q2: 0.684 0.672 0.283 Q3: 0.174 0.009** ++ 0.625 Q4: 0.146 0.982 0.786
  22. 22. Findings by Week <ul><li>All weeks are the same </li></ul><ul><ul><li>Null: μ week1 = … = μ week53 </li></ul></ul><ul><ul><li>(EYs, nEYs) </li></ul></ul><ul><li>All years are the same </li></ul><ul><ul><li>Null: μ 1987 = … = μ 2006 </li></ul></ul><ul><ul><li>(EYs, nEYs) </li></ul></ul><ul><li>EY vs. nEY </li></ul><ul><ul><li>Null: μ Qi-EY = μ Qi-nEY </li></ul></ul><ul><ul><li>(for each quarter) </li></ul></ul>Values shown are p-values from corresponding hypothesis tests. USD ->EUR (1999-2006) USD ->GBP (1987-2006) USD ->JPY (1987-2006) EY: 0.006 0.300 0.496 nEY: 0.666 0.253 0.211 EY: 0.006 0.775 0.771 nEY: 0.428 0.648 0.945 Q1: 0.827 0.970 0.606 Q2: 0.684 0.672 0.283 Q3: 0.174 0.009** ++ 0.625 Q4: 0.146 0.982 0.786
  23. 23. Findings by Week <ul><li>All weeks are the same </li></ul><ul><ul><li>Null: μ week1 = … = μ week53 </li></ul></ul><ul><ul><li>(EYs, nEYs) </li></ul></ul><ul><li>All years are the same </li></ul><ul><ul><li>Null: μ 1987 = … = μ 2006 </li></ul></ul><ul><ul><li>(EYs, nEYs) </li></ul></ul><ul><li>EY vs. nEY </li></ul><ul><ul><li>Null: μ week i -EY = μ week i -nEY </li></ul></ul><ul><ul><li>(for each week corresponding to activities in the presidential cycle) </li></ul></ul>Values shown are p-values from corresponding hypothesis tests. The Presidential Cycle Year 1, week 3: Inauguration Year 4, weeks 5-25: Primary Elections Year 4, weeks 34-38: Political Conventions Year 4, week 46: Presidential Election USD ->EUR (1999-2006) USD ->GBP (1987-2006) USD ->JPY (1987-2006) EY: 0.088 0.815 0.802 nEY: 0.384 0.109 0.736 EY: 0.418 0.442 0.669 nEY: 0.052 0.127 0.682 Q1: 0.827 0.970 0.606 Q2: 0.684 0.672 0.283 Q3: 0.174 0.009 0.625 Q4: 0.146 0.982 0.786
  24. 24. The Presidential Cycle Year 1, week 3: Inauguration Year 4, weeks 5-25: Primary Elections* Year 4, weeks 34-38: Political Conventions Year 4, week 46: Presidential Election The values shown correspond to weeks in which there was a difference (between EYs and nEYs) of more than 0.15% *denotes significance at the 0.10 level
  25. 25. The Presidential Cycle Year 1, week 3: Inauguration Year 4, weeks 5-25: Primary Elections* Year 4, weeks 34-38: Political Conventions* Year 4, week 46: Presidential Election The values shown correspond to weeks in which there was a difference (between EYs and nEYs) of more than 0.15% *denotes significance at the 0.10 level
  26. 26. The Presidential Cycle Year 1, week 3: Inauguration Year 4, weeks 5-25: Primary Elections* Year 4, weeks 34-38: Political Conventions* Year 4, week 46: Presidential Election The values shown correspond to weeks in which there was a difference (between EYs and nEYs) of more than 0.15% *denotes significance at the 0.10 level
  27. 27. Conclusion <ul><li>We examined the significance of the impact of time of the year and other activities in the presidential cycle on the exchange rates between the United States and the European Union, England, and Japan. </li></ul>
  28. 28. Conclusion <ul><li>Increase in the quarterly exchange rate just before election time but are not significant. except for the USD -> GBP exchange. </li></ul><ul><li>Differences were reported for the USD -> EUR exchange, </li></ul><ul><ul><li>Only two election years available to study </li></ul></ul><ul><ul><li>Sample size is too low for meaningful results. </li></ul></ul><ul><li>The USD -> GBP exchange rate seems to respond to the U.S. presidential cycle more so than the USD -> EUR or USD -> JPY exchange rates. </li></ul>
  29. 29. The End Thank You

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