Rational speculative bubbles in the US stock market and political cycles

This paper tests the existence of rational speculative bubbles during Democratic and Republican presidential terms, which has not been systematically researched in existing studies. With monthly real returns on equally-weighted and value-weighted portfolios in the U.S. from January 1927 to December 2012, we find that there are rational speculative bubbles under Republican Presidents but not under Democratic Presidents. Our results are robust to different specifications.