By Robert Folsom | February 13, 2012
What’s the biggest influence on the outcome of presidential elections?
Many observers would identify the role of campaign spending by super PACs, a candidate’s debate performance, and, of course, the health of the economy (“stupid”).
Yet if you want an answer backed by a large body of evidence, you’ll find one in the recently-published, landmark research paper by Robert Prechter, Deepak Goel, Wayne Parker and Matthew Lampert, titled “Social Mood, Stock Market Performance and US Presidential Elections.”
A lot of time, data analysis, and copious statistical evidence led them to this straightforward result: “Social mood as reflected by the stock market is a more powerful regulator of re-election outcomes than economic variables such as GDP, inflation and unemployment…”
In other words: If you want a good predictor for the result of an incumbent president’s re-election, look to the stock market.
Large amounts of earlier research have focused on stock performance after a presidential election. But very few scholars have reversed that order, to investigate a possible link between elections and preceding stock market performance. So reverse that order is what the authors did. What’s more, they’re the only ones to study the issue from a socionomic perspective — the premise that waves of social mood simultaneously drive the valuations of stocks and sitting presidents.
The group published their research on January 17, and it’s already getting attention. A Washington Post columnist read the paper and got its practical usefulness, by noting that Obama should benefit from a stock market that’s been mostly higher since 2008, while a Republican challenger “should hope the Dow crashes.”
You can read the research paper yourself by clicking here. At the top of the next page, click the link that reads, “One-Click Download”.