Presidential Elections and the Macroeconomy: An Examination Through Prediction Markets

Abstract

Previous analyses of partisan impacts on public markets indicate that investors expect Republicans to generate higher equity prices, bond yields, and a stronger dollar. Republicans’ economic performance while in office does not justify their favorable forecasts. Further, the composition of the economy has changed since the Republican valuation bias was established. I model my research after Snowberg et al. (2006) to study the 2012, 2016, and 2020 presidential elections to see whether the valuation bias still exists. I get mixed results for the 2012 and 2016 elections but find that there is evidence that markets anticipate higher equity valuations under Democrat candidate Joseph Biden.