Quantitative Selection of Election Portfolios
25 Pages Posted: 22 Aug 2018 Last revised: 5 Feb 2019
Date Written: February 1, 2019
We combine stock prices with data from political betting markets in order to assess individual stock price sensitivity to potential election outcomes. Selecting stocks before the elections based on this sensitivity, we build portfolios that generate large positive returns after the election date conditional on the election outcome. This outperformance persists for several days after the elections, leading to positive returns even for investors who build their portfolios once the election outcome becomes known. The approach is illustrated using data from the US presidential elections 2016 and the Brexit referendum 2016.
Keywords: betting odds, election portfolios, political uncertainty
JEL Classification: G11, D72
Suggested Citation: Suggested Citation