The stock market prices presidential candidates

…[political] platforms are capitalized into equity prices: under a Bush administration, relative to a counterfactual Gore administration, Bush-favored firms are worth 3-8 percent more and Gore-favored firms are worth 6-10 percent less. The most sensitive sectors include tobacco, worth 13-25 percent more under a favorable Bush administration, Microsoft competitors, worth 15 percent less under a favorable Bush administration, and alternative energy companies, worth 16-27 percent less under an unfavorable Bush administration.

This result was generated by correlating firm-specific equity returns with the Iowa Electronic [Presidential] Market forecasts. In other words, when Bush’s electoral fortunes went up, “Bush stocks” rose as well.

Here is the full paper. Here is the home page of the researcher, Brian Knight.

The bottom lines: 1) Overall the market did regard Bush as “better for business” than Gore. 2) Equity markets moved more rapidly than did the Iowa markets. 3) If the outcome of a Presidential election truly matters to you, your position can be hedged fairly easily. 4) Presumably there are “John Kerry stocks” right now.

Thanks to Eric Crampton for the pointer.


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