Real Effects of Markets on Politics: Evidence from U.S. Presidential Elections

61 Pages Posted: 7 Oct 2019 Last revised: 3 Feb 2021

See all articles by Alan D. Crane

Alan D. Crane

Rice University - Jesse H. Jones Graduate School of Business

Andrew Koch

University of Pittsburgh - Finance Group

Leming Lin

University of Pittsburgh - Katz Graduate School of Business

Date Written: February 1, 2021

Abstract

Despite the economic importance of the U.S. stock market, there is strikingly little evidence of its impact on elections. Using county-level variation in stock market participation, we document a causal impact of market returns on election outcomes. High-participation counties are more likely to vote for the incumbent party when the market has performed well relative to low-participation counties. The effect is weaker in Republican-leaning counties and more politically active counties, and comes mostly through the intensive margin rather than affecting turnout. Our findings provide evidence of a novel channel through which stock market fluctuations could be transmitted into the real economy.

Keywords: stock market participation, stock returns, elections, voting, real effects

JEL Classification: D72, E3, G10, H31

Suggested Citation

Crane, Alan D. and Koch, Andrew and Lin, Leming, Real Effects of Markets on Politics: Evidence from U.S. Presidential Elections (February 1, 2021). Available at SSRN: https://ssrn.com/abstract=3460209 or http://dx.doi.org/10.2139/ssrn.3460209

Alan D. Crane

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Andrew Koch (Contact Author)

University of Pittsburgh - Finance Group ( email )

372 Mervis Hall
Pittsburgh, PA 15260
United States

Leming Lin

University of Pittsburgh - Katz Graduate School of Business ( email )

346 Mervis Hall
University of Pittsburgh
Pittsburgh, PA 15260
United States

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