Markets React to Barack
Amid all the excitement yesterday, the Dow Jones lost 486 points. As the New York Times points out, “For those curious about the connection between stock markets and presidential elections, Wednesday’s declines fit in with historical precedent. Since 1888, on average, stocks fell 0.5 percent from Monday to Wednesday of a presidential election week when the Democrats took the White House, according to Jeremy J. Siegel, a professor at the Wharton School. (A Republican victory brought an average return of 0.7 percent.) This week, stocks fell about 1.5 percent over the same period.”
The Economist offers another possibility for yesterdays decline, “One reason may be that markets already reflected the outcome; after all, it was not exactly unanticipated” (which makes sense to me, since prediction markets had Obama way up). (On the topic, you should also read the 2003 piece by Hal Varian the Economist links to which party means better market returns.)