Partisan Impacts on the Economy: Evidence from Prediction Markets and Close Elections

26 Pages Posted: 6 Oct 2006 Last revised: 29 Jun 2010

See all articles by Erik C. Snowberg

Erik C. Snowberg

Independent

Justin Wolfers

University of Michigan at Ann Arbor - Department of Economics; University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; The University of Sydney - Discipline of Economics; Brookings Institution - Economic Studies Program; Peter G. Peterson Institute for International Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Kiel Institute for the World Economy

Eric Zitzewitz

Dartmouth College; NBER

Multiple version iconThere are 3 versions of this paper

Date Written: March 2006

Abstract

Analyses of the effects of election outcomes on the economy have been hampered by the problem that economic outcomes also influence elections. We sidestep these problems by analyzing movements in economic indicators caused by clearly exogenous changes in expectations about the likely winner during Election Day. Analyzing high frequency financial fluctuations following the release of flawed exit poll data on Election Day 2004, and then during the vote count, we find that markets anticipated higher equity prices, interest rates and oil prices and a stronger dollar under a Bush presidency than under Kerry. A similar Republican-Democrat differential was also observed for the 2000 Bush-Gore contest. Prediction market based analyses of all Presidential elections since 1880 also reveal a similar pattern of partisan impacts, suggesting that electing a Republican President raises equity valuations by 2 3 percent, and that since Reagan, Republican Presidents have tended to raise bond yields.

Suggested Citation

Snowberg, Erik C. and Wolfers, Justin and Zitzewitz, Eric W., Partisan Impacts on the Economy: Evidence from Prediction Markets and Close Elections (March 2006). NBER Working Paper No. w12073, Available at SSRN: https://ssrn.com/abstract=888275

Erik C. Snowberg

Independent

Justin Wolfers (Contact Author)

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