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

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  • Erik Snowberg
  • Justin Wolfers
  • Eric Zitzewitz

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 George W. Bush presidency than under John Kerry. A similar Republican-Democrat differential was also observed for the 2000 BushGore 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 Ronald Reagan, Republican presidents have tended to raise bond yields.

Suggested Citation

  • Erik Snowberg & Justin Wolfers & Eric Zitzewitz, 2007. "Partisan Impacts on the Economy: Evidence from Prediction Markets and Close Elections," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 807-829.
    • Handle: RePEc:oup:qjecon:v:122:y:2007:i:2:p:807-829.
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    File URL: http://hdl.handle.net/10.1162/qjec.122.2.807
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    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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