Risk Aversion and Political Economics

Conventional wisdom says that a strong economy helps incumbents, while a weak economy hurts them. But new research from University of Chicago economist Lubos Pastor titled “Political Cycles and Stock Returns” challenges this idea, suggesting that economic downturns actually push voters toward Democrats, while economic booms favor Republicans.

If true, this theory could explain decades of presidential elections—and even the stock market’s historic tendency to perform better under Democratic administrations. But does the data back it up?