Drawdown Risk and the 2024 Presidential Election

Abstract

Drawdown risk measures show how the value of an investment changes from a peak to a trough and are widely used by practitioners1 . This paper provides instructions for analyzing drawdown risk around Presidential elections, with methods extendable to other events and horizons. The approach can be applied by analysts at financial planning firms or students in finance, investment, or business analytics courses. Exercises can be performed using SAS, VBA, STATA, R, or Python. In a classroom setting, students analyze risk in preparation for a hypothetical financial planning meeting with clients concerned about the 2024 Presidential Election. Check numbers are provided for the 2020 U.S. Presidential Election, showing that investors who bought the S&P 500 index one- , three-, or six-months prior experienced maximum drawdown risk of 7.5%, 9.6%, or 9.6%, with recovery periods of 7, 50, or 50 days. Instructions allow analysis for the most recent seven elections, supporting both applied teaching and practitioner-oriented risk evaluation.