Real Effects of Markets on Politics: Evidence from U.S. Presidential Elections
61 Pages Posted: 7 Oct 2019 Last revised: 3 Feb 2021
Date Written: February 1, 2021
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: Suggested Citation