Presidential puzzle

: the case of Portugal

Abstract

Economics and politics have already proven to be essential subjects in today's society, dependent and, above all, good predictors of each other. For this reason, it seems not only correct but also appropriate and important to study the relationship between political cycles and economic cycles and the effects of each. This dissertation aims at studying, in particular, the relation of the stock market and the political orientation of the political decision makers in Portugal (Prime Minister and President of the Republic), thus making an appropriate correspondence between what may be popular interest and expectations and the academic research on the relation between the political party in office and stock returns. To this end, linear regressions (using the OLS estimation technique) were used where the significance of the political orientation of the Portuguese Prime Minister on returns (real and excess) of the Psi 20 is analysed. In this regression, we considered some macroeconomic variables that may and are likely to affect the stock market and its returns as well as political factors that can affect the stability and decisions of the governing bodies. The results of the empirical model suggest that there is no bias in real and excess returns, in support of any of the parties that have been taking turns in power in Portugal. Only when disregarding the negative 3-month Euribor interest rates can we state that the political orientation of the Prime Minister has an influence on returns and that these are slightly higher under the leadership of Partido Social Democrata.

Date of Award	25 Oct 2023
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Carlos Eduardo Soares de Seixas (Supervisor)