The stock market has a measurable influence on how people who own shares vote — potentially a big one — according to a new study by finance experts at Rice University and the University of Pittsburgh.
The study, which compared electoral preferences with levels of dividend income, suggests that had stocks rallied instead of plunging in 2008, then-presidential candidate John McCain may have won key states like Florida and Ohio, said coauthor Alan Crane, associate professor of finance at Rice Business. He is available to discuss the study, a working paper, with the news media.
Crane and his coauthors don’t say equity returns determine elections, but there’s reason to think stock performance affects decisions at the margin, and in certain circumstances could turn the tide.
“The story is, if you’ve got a lot of money invested in the stock market, and the stock market has been going up, then you’re going to support that incumbent party, because that’s good for you personally,” Crane said. “You have an opportunity for politicians to cater through this particular channel.”
From an academic standpoint, there is a generally accepted principle: A good economy is good for the incumbent. “The problem is, it’s very hard to show,” said Crane, who wrote the paper with Pittsburgh professors Andrew Koch and Leming Lin. “What we’re trying to do in this paper is nail that down. Say, ‘Look, the stock market does have this causal effect going in that direction, and we can identify that.'”
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Crane bio: https://business.rice.edu/person/alan-crane
Jones Graduate School of Business: https://business.rice.edu