Blog - Investing Notes
August 19, 2008 - Any Investor Response to Presidential Polling Data?
Do presidential election polling data have any effect on stock returns? In other words, do investors act on the survey-indicated election prospects for the two major party candidates? Presumably, investors would tend to enter (exit) stocks if they thought the candidate with policies more (less) favorable for equity valuation were gaining ground. Using Gallup Daily polling data and contemporaneous daily closing levels of the S&P 500 index from June 6 (when the major party nominations solidified) through August 17 (49 trading days), we find that:
The following chart compares the daily Gallup polling data gap in election prospects between Senator Obama and Senator McCain to the level of the S&P 500 index over the entire sample period. Each day's gap is the result of surveys of registered voters conducted over the prior three days. The polling gap is always positive or zero because Senator Obama has not trailed Senator McCain over this period. There are breaks in the S&P 500 index graph because of weekends/holidays. Visual inspection indicates no systematic relationship between polling data and stock market behavior.
For greater precision, we compare daily changes in polling data and daily stock market returns.
The following scatter plot relates the same-day S&P 500 index return to the daily change in the Obama-McCain polling gap. A positive (negative) change in the gap means that Senator Obama (Senator McCain) is gaining ground. The Pearson correlation between the two series is -0.11, hinting that investors tend to sell (buy) when Senator Obama (Senator McCain) is gaining ground. However, the correlation is very weak, and the R-squared statistic is just 0.01, indicating that variation in the daily polling gap explains only 1% of daily stock market returns. Given the sample size, evidence this weak does not support a belief that investors act on daily presidential election polling data.
In case there is a delay in investor reaction, we also test the relationship between next-day S&P index returns and the daily change in the polling gap. Results are nearly identical.
As a further test for any relationship, we rank the daily changes polling gaps and calculate the average same-day S&P 500 index returns for: (1) the 19 trading days on which Senator Obama gains ground; (2) the 12 trading days on which there is no change in the gap; and, (3) the 18 trading days on which Senator McCain gains ground. The following table summarizes the results. The small and unsystematic differences in average returns among the three subsamples, in combination with very small subsample sizes, offer no support for a belief that daily presidential election polling data influence trading activity.
In summary, limited evidence indicates that daily presidential election polling data do not affect the aggregate trading behavior of equity investors.
For related research, see Blog Synthesis: Politics and the Stock Market.
