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Do opinion polls move stock prices? Evidence from the US presidential election in 2016

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  • Herold, Michael
  • Kanz, Andreas
  • Muck, Matthias

Abstract

This paper analyzes stock returns before and during the 2016 US presidential election. This election stands out because both nominees Clinton and Trump were frequently characterized to have very different profiles and the outcome was considered as a major surprise. We explore the relationship between polling data and stock prices during the pre-election period. To measure the impact of polling data on stock prices, we develop the “Trump Head-to-Head Momentum” (THHM) reflecting increasing poll scores for Trump during election uncertainty. Implementing a GARCH-in-Mean model, we find that the measure is significantly related to industries representing about 30% of the market capitalization. Moreover, we find that THHM-based active trading strategies outperform passive strategies after the election. This also suggests that stock prices have been exposed to changes in the probability of the event “Trump wins the election” in the pre-election period.

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  • Herold, Michael & Kanz, Andreas & Muck, Matthias, 2021. "Do opinion polls move stock prices? Evidence from the US presidential election in 2016," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 665-690.
    • Handle: RePEc:eee:quaeco:v:80:y:2021:i:c:p:665-690
    DOI: 10.1016/j.qref.2021.03.013
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    More about this item

    Keywords

    Presidential election uncertainty; Pre-election information; Opinion polls; Industry returns; GARCH-M; Market efficiency;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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