Do stock markets respond to political prediction markets?

Analyses of the effects of election outcomes on the economy have been hampered by the problem that economic outcomes also influence elections . We sidestep these problems by analyzing movements in economic indicators caused by clearly exogenous changes in expectations about the likely winner during Election Day. Analyzing high frequency financial fluctuations following the release of flawed exit poll data on Election Day 2004, and then during the vote count, we find that markets anticipated higher equity prices, interest rates and oil prices and a stronger dollar under a Bush presidency than under Kerry. A similar Republican-Democrat differential was also observed for the 2000 Bush-Gore contest. Prediction market based analyses of all Presidential elections since 1880 also reveal a similar pattern of partisan impacts, suggesting that electing a Republican President raises equity valuations by 2-3 percent, and that since Reagan, Republican Presidents have tended to raise bond yields.
That is Snowberg, Wolfers, and Zitzewitz (pdf), via Adam Ozimek.  Here is the background context, relating to prediction markets today.

Comments

I talk about cultures of Wall Street in the other thread. I think (I was never there) that part of it is to use historic data as "the relationship."

"Prediction market based analyses of all Presidential elections since 1880 also reveal a similar pattern of partisan impacts, suggesting that electing a Republican President raises equity valuations by 2-3 percent, and that since Reagan, Republican Presidents have tended to raise bond yields."

Well gosh, if you use that as "the relationship" you aren't going to have a special Trump adjustment. You don't have the tools available to make one.

How to reconcile this paper with the one that says stock markets outperform in economies that are low-growth and in shambles? Perhaps there's no contradiction, in that the out-performance here is within a market (stocks go higher faster under Republicans vs Democrats, but it says nothing about stocks going higher in emerging markets)

Off-topic: Trump as a sort of Andrew Jackson, Trump as a proto-Hitler, Trump as a proto-perverse Gracchi brother (who set the precedent to destroy the Roman Republic, at least some say they set dangerous precedents).

I hope the good guy wins so the stocks I don't own become worth more. I'm really worried about state street and blackrock. I hope they come out of everything okay.

"Gracchi brother (who set the precedent to destroy the Roman Republic, at least some say they set dangerous precedents)."

Trump could lead to the fall of the American empire in 5 centuries!

You haven't seen Julian Assange's October Surprise. Without knowing what it will be, too soon to make a prediction. Too soon to make a decision. Sit on the fence until you know what's going to happen.

I hope the good guy wins so the stocks I don’t own become worth more. I’m really worried about state street and blackrock. I hope they come out of everything okay.

“Gracchi brother (who set the precedent to destroy the Roman Republic, at least some say they set dangerous precedents).”

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