Can trading strategies be developed to take advantage of observed patterns of stock price behavior surrounding presidential election dates? An analysis of average daily profit (loss) figures for the mid-September to Christmas period of every election year from 1900 to 1976 reveals that optimal trading strategies vary depending upon the outcome of the election.

For the 10 elections won by Republicans, the optimal strategy would have been to buy roughly 39 trading days before the election and to sell roughly 27 trading days after the election, for an average profit of 7.33 per cent. In the case of Democratic victories, the optimal strategy involved buying 49 calendar days before the election, selling short within two days after the election and closing out the short position approximately 42 days later, for an average gain of 5.0 per cent.

Market behavior, hence optimal trading strategies, also differ somewhat between landslide victories and close elections and between incumbent party wins and losses. Examination of the 13 elections won by incumbent parties suggests a strategy of buying 42 days before the election and selling 13 days after, for a gain of 8 per cent. The historical evidence from incumbent party losses suggests the possibility of selling short in anticipation of a market decline after the election.