Real Effects of Markets on Politics: Evidence from U.S. Presidential Elections
49 Pages Posted: 7 Oct 2019
Date Written: September 26, 2019
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: Suggested Citation