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Pepperdine Study: Economy Improves Before Nearly All Presidential Elections

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Traders work on the floor of the New York Stock Exchange during afternoon trading on October 4, 2012 in New York City. Following news that European Central Bank president Mario Draghi is committed to the central bank's new bond-buying plan, stocks rose with the Dow Jones Industrial Average gaining 80.75 points.  (credit: Spencer Platt/Getty Images)

Traders work on the floor of the New York Stock Exchange during afternoon trading on October 4, 2012 in New York City. Following news that European Central Bank president Mario Draghi is committed to the central bank’s new bond-buying plan, stocks rose with the Dow Jones Industrial Average gaining 80.75 points. (credit: Spencer Platt/Getty Images)

Election 2012

MALIBU (CBSLA.com) — Two Pepperdine University economists are proving correct the adage, “It’s the economy, stupid,” in their study that found upcoming presidential elections are almost always preceded with economic improvement.

Marshall Nickles and Nelson Granados write in the university’s peer-reviewed Graziadio Business Review that because of the predictable, four-year cycle of presidential terms, investors can cut their risks if one were “invested for only approximately the second half of the U.S. four-year presidential cycle or about 50 percent of the time.”

Following the Dow Jones Industrial Averages and presidential cycles dating back to the 1950s, Nickles and Granados say they found maximum profits occurred during the second half of nearly every four-year presidential term.

The professors write that incumbent presidents are looking at voters when they push for proposed tax reductions and increasing spending on specific government programs as election season looms. Incumbent political parties also work to persuade the Federal Reserve to increase money supply and reduce interest rates, according to the article.

Such fiscal policy usually results in higher corporate profits and higher stock prices, “just in time for the next presidential election.”

The one anomaly the professors found was the end of George W. Bush’s term in 2008, when the economy went into financial free-fall.

Read the full report at the Graziadio Business Review.

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