The Stock Market and Economic Voting

by Joshua Tucker on October 15, 2009

in Campaigns and elections

Over at Politico this morning, there is a story entitled John Boehner downplays Dow 10,000. In it, the author writes:

Dow 10,000 just isn’t that big a deal, House Republican leader John Boehner said Wednesday morning. And anyone who places significance on the stock market hitting this symbolic number is “certainly not talking to the American people.”

In responding to this story in Politico’s Arena, I offered the following comment:

Boehner’s recent comments sounds like wishful thinking on his part, but the reality is that he is may be right in terms of the potential effect of a stock market swing on future voting behavior. Studies of economic voting in the United States show a strong relationship between economic conditions and presidential vote (or vote for the president’s party in congressional elections), but the variables that have tended to matter have been more focused on economic grows (e.g., change in real disposable income) than the stock market. In fact, a 2001 study by Michael Lewis Beck and Charles Tien (gated) concluded that “despite the current talk about using stock market performance as an economic indicator [in economic voting models], we found it had no vote effect after all.”. In the post-communist countries of Eastern Europe, interestingly, recent research by Andrew Roberts shows that unemployment turns out to be the most important economic indicator in voting for incumbents (gated), although he doesn’t include any stock market based variables in his models. Of course, to the extent that the stock market is doing what it is supposed to be doing (admittedly a big if!) and serving as a leading indicator of future economic growth, then Obama – and Democratic congressional candidates – may indeed stand to benefit in the future.

I wanted to throw this question out to the readers of The Monkey Cage to see if there was any new interesting research out there since the Lewis Beck and Tien (2001) PS piece on the relationship between stock prices and voting behavior, either in the US or elsewhere. Please feel free to promote your own research!

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