Is it 'Kerry Up, Market Down' or 'Market Down, Kerry Up?' Correlation Versus Causation
Posted: 8 Sep 2004
Date Written: August 18, 2004
A negative relationship between contemporaneous stock market movements and Kerry's probability of getting elected has been documented. This raises a critical question. Does this relationship mean stock markets react negatively to Kerry's prospects, or that Kerry's prospects improve whenever the stock market dips? Establishing this causation is probably critical for both campaigns. Using lagged relationships, we show the causation is from the stock market to Kerry's prospects. This supports the popular adage "It's the economy, Stupid".
Keywords: Election, Causation, Kerry, Bush
JEL Classification: C20, C52, D72
Suggested Citation: Suggested Citation