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

49 Pages Posted: 7 Oct 2019

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: September 26, 2019

Abstract

We explore the electoral implications of stock market fluctuations. Analyzing the outcome of presidential elections at the county level from 1992 to 2016, we find that the market return directly influences U.S. presidential elections, but with significant heterogeneous effects among constituents. Counties with high stock market participation are more likely to vote for the incumbent party when the stock market has performed well since the previous election relative to low participation counties. Our results are robust to controlling for various aggregate and local shocks and various model specifications. The effect of the stock market on voting is weaker in partisan and Republican leaning counties and in battleground states, and is not driven by differential voter turnout. Overall, our finding provides evidence on the effect of the stock market on politics and 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 (September 26, 2019). 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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