Back Testing Fact: Index Performance in pre-election year

The year 2018 being a pre-election year will have a significant bearing on sentiment in equity markets.

Apr 19, 2018 08:04 IST others Raushan Kumar |

Financial markets worlwide are highly sensitive to the election cycle. The cycle consists of the election year, post-election year, mid-term years and pre-election year. 

The year 2018 being a pre-election year will have a significant bearing on sentiments in Indian equity markets.
 
As per historical data, the Sensex has performed relatively well in the pre-election year.

(Please refer below table) 
sensex performance

 
During 1983 to 2013: The index generated negative returns (i.e. 1995, 1998 and 2008) in only three out of total nine occasions. During 1995 and 1998, it was due to an unstable political scenario, while in 2008 the markets were negatively impacted due to global financial crises.

Hence, historical evidence suggests that 2018 should not be a negative year.

Remarks:
As per back testing, the best derivative strategies in the pre-election year is Back Spread calls, Long Calendar calls, Long Condor, Strap and STRIP. It is recommended to do these complex option strategies through a "Derivative expert" only, as it is very important to manage the risk management against adverse market movements.

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