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The stock market and U.S. presidential approval

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... Some studies in the literature related to the economics and elections nexus focus on a particular economic variable due to the significance of that economic variable on voter behavior. Recent studies show that the stock market index is included in the vote and popularity functions (Gwilym and Buckle 1994;Hudson et al. 1998;Schwartz et al. 2008;Fauvelle-Aymar and Stegmaier 2013). ...
... Political business cycle is not relevant to the current analysis, and therefore it is not considered further. Whether stock market performance might theoretically change presidential approval is discussed by Fauvelle-Aymar and Stegmaier (2013). They indicate, … market figures are reported more frequently than other macroeconomic indicators, and the media interpret the market's direction in terms of the nation's economic health and what it means for American's pocketbook." ...
... Researchers have used a variety of macroeconomic variables in aggregate vote functions (Geys and Vermeir 2008;Schwartz et al. 2008;Chong et al. 2011;Fauvelle-Aymar and Stegmaier 2013;Wisniewski 2009). These variables are important guidelines for politicians, since they can observe the factors affecting the voters' decisions. ...
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In this study, we attempt to answer the question of whether stock market performance affects the government satisfaction rating in the long run in a sample period spanning 1984:Q1 to 2013:Q2 in the UK. We examine both the equilibrium relationship and the causality relationship between stock market performance and government satisfaction rating. The results indicate that the voters are sensitive to the economic shocks and hold responsible for the government. The empirical results confirm the responsibility hypothesis.
... Studies have long noted that voters reward or punish incumbent governments in elections based on the government's economic performance (Ashworth, 2012;Duch and Stevenson, 2008;Healy and Malhotra, 2013;Hibbs, 1982;Lewis-Beck and Stegmaier, 2000). Voters assess the state of the national economy and their own financial situation both retrospectively and prospectively, relying on either objective performance indicators-such as inflation, unemployment, stock market price and per capita income-or subjective perceptions of personal and national conditions (Fauvelle-Aymar and Stegmaier, 2013;Lewis-Beck and Stegmaier, 2000;Stiers and Dassonnevile, 2020). ...
... This may be because proportional systems are better at addressing electoral losers' discontent (Anderson and Guillory, 1997). The coefficient for the honeymoon effect is positive and significant, indicating that new governments tend to enjoy a honeymoon in the beginning of their term, which is consistent with findings from other studies Fauvelle-Aymar and Stegmaier, 2013). ...
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In this article, we argue that rising housing prices increase voter approval of incumbent governments because such a rise increases personal wealth, which leads to greater voter satisfaction. This effect is strongest under right-wing governments because those who benefit from rising prices—homeowners—are more likely to be right-leaning. Non-homeowners, who are more likely to vote for left-leaning parties, will view rising housing prices as a disadvantage and therefore feel the government does not serve them well, which will mitigate the advantage to left-wing governments. We find support for our arguments using both macro-level data (housing prices and government approval ratings in 16 industrialized countries between 1960 and 2017) and micro-level data (housing prices and individuals’ vote choices in the United Kingdom using the British Household Panel Survey). The findings imply that housing booms benefit incumbent governments generally and right-wing ones in particular.
... An example is given by the study of [30] , finding that the Iraq war had a significant negative impact on president George W. Bush's approval rating. Despite a president's political actions, academia has identified several other factors that drive the public support, like macroeconomic conditions (unemployment, inflation, etc.; [62,84] ), issue salience [29] , stock market performance [33] , televised speeches [107] or rallying events [30,43,80] . The typical approach in political science to identify such factors is via time-series analysis (cp. ...
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This paper studies the long-range dependence and multifractal content of U.S. political time-series to gather a deeper understanding of sociophysic phenomena. Specifically, multifractal detrended fluctuation analysis (MF-DFA) is applied upon data in the context of (i) president approval (polls), (ii) president on- line attention (Google Trends) and (iii) election-win probabilities (prediction markets). All analyzed series are characterized by anti-persistence, which may be interpreted as a nervous and overreacting behavior. We further detect significant multifractality with true non-linear correlation remaining after correcting for spurious sources. Importance from understanding the multifractal behavior arises from the fact that all three data types are used in practice for the prediction of election outcomes. We further argue that variation in local persistence (as implied by multifractality) can be both beneficial and destructive in dif- ferent real-world scenarios. We draw parallels to simple examples like the timing of political campaigns or trading on prediction markets. On the methodological side, the article implements recent improve- ments of MF-DFA such as focus-based regression and overlapping segments.
... An example is given by the study of [30], finding that the Iraq war had a significant negative impact on president George W. Bush's approval rating. Despite a president's political actions, academia has identified several other factors that drive the public support, like macroeconomic conditions (unemployment, inflation, etc.; [62,84]), issue salience [29], stock market performance [33], televised speeches [107] or rallying events [30,43,80]. The typical approach in political science to identify such factors is via time-series analysis (cp. ...
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This paper studies the long-range dependence and multifractal content of U.S. political time-series to gather a deeper understanding of sociophysic phenomena. Specifically, multifractal detrended fluctuation analysis (MF-DFA) is applied upon data in the context of (i) president approval (polls), (ii) president online attention (Google Trends) and (iii) election-win probabilities (prediction markets). All analyzed series are characterized by anti-persistence, which may be interpreted as a nervous and overreacting behavior. We further detect significant mul-tifractality with true non-linear correlation remaining after correcting for spurious sources. Importance from understanding the multifractal behavior arises from the fact that all three data types are used in practice for the prediction of election outcomes. We further argue that variation in local persistence (as implied by multifractality) can be both beneficial and destructive in different real-world scenarios. We draw parallels to simple examples like the timing of political campaigns or trading on prediction markets. On the methodological side, the article implements recent improvements of MF-DFA such as focus-based regression and overlapping segments.
... Extant con- tributions that accord with this idea have revisited an earlier literature (e.g., Conover, Feldman, & Knight, 1986) that sought to distinguish which eco- nomic indicators play the strongest role in influencing subjective economic perceptions. For example, Fauvelle-Aymar and Stegmaier (2013) investigate the association between US stock market growth and Presidential approval, finding that the trends are more closely linked than previously thought. Such findings point to the notion that subjective economic perceptions are not made up of a balanced amalgam of current economic conditions as measured by professional economists, but rather critically depend on the content of intermediary information being passed to citizens through the news. ...
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The economic vote provides a widely available tool for gauging electoral accountability. Yet in many cases, this search for electoral accountability appears elusive. A large literature has yielded conflicting and unstable empirical results. While there appears to be an association between the economy and citizens' voting behavior, we are unsure of its foundation. Do citizens reflect on the performance of the economy when choosing between candidates in democratic elections? What determines the existence and size of the economic vote: individual attributes, the wider politico-economic context, or messages received from trusted elites? Scholars have unearthed some answers by turning outward to consider context, theorizing the cross-national, individual-level, and temporal conditions under which economic voting is likely to be strongest. In addition, more recently, researchers have turned inward to reassess the mechanism that drives the link between economic performance and voting behavior. Future scholarship must continue to interrogate core theoretical questions in an effort to better understand how citizens' subjective economic evaluations are reflected in their decisions as voters. Keywords: economy; voting behavior; economic evaluations; sociotropic economy; motivated reasoning; endogeneity; clarity of responsibility
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We discuss the current state of stockownership among households in major European countries, drawing parallels and contrasts with the US experience. Our analysis of detailed microeconomic data documents increasing stock market participation and persistent differences across countries in our sample: many more US, UK and Swedish households participate in the stock market than is the case in the Netherlands and, especially, in France, Germany, and Italy. At the individual household level, the data indicate that stock market participation correlates robustly with wealth and education, which have only small effects, however, on the asset share invested in stocks by households who do participate. These empirical results point to the relevance of participation costs, and we find that indicators of such costs are consistent with the observed pattern of participation across countries. Over time, higher participation was brought about by lower participation costs. We discuss the possible impact of market entry by households with different characteristics, and outline types of policies that could mitigate any undesirable stock market effects of cheaper and broader participation. — Luigi Guiso, Michael Haliassos and Tullio Jappelli
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The usual model of electoral reaction to economic conditions assumes the “retrospective” economic voter who bases expectations solely on recent economic performance or personal economic experience (voter as “peasant”). A second model assumes a “sophisticated” economic voter who incorporates new information about the future into personal economic expectations (voter as “banker”). Using the components, both retrospective and prospective, of the Index of Consumer Sentiment (ICS) as intervening variables between economic conditions and approval, we find that the prospective component fully accounts for the presidential approval time series. With aggregate consumer expectations about long-term business conditions in the approval equation, neither the usual economic indicators not the other ICS components matter. Moreover, short-term changes in consumer expectations respond more to current forecasts than to the current economy. The qualitative result is a rational expectations outcome: the electorate anticipates the economic future and rewards or punishes the president for economic events before they happen.
Article
For an issue to have a significant influence on evaluations of the president, it must be salient to people and people must evaluate the president in terms of his performance regarding it. Issues vary in salience to the public over time; evaluations of the president's performance on issues vary in their impact on presidential approval over time; and evaluations of the president's performance on issues have more impact on presidential approval when the issues are salient to the public. Content analysis of media coverage of issues; cross-sectional multichotomous logit-regression analysis of 25 national public opinion polls; and time-series regression analysis of the relationship between issue salience and their impact on presidential approval. Issues vary over time in their salience to the public and in their impact on presidential approval; and the salience of issues to the public directly affects their impact on the public's evaluation of the president.
Article
The economy being the key to presidential popularity, what is the economic intelligence inspiring the approval judgments of American voters? According to one school of thought, the public relies on the current performance of the economy (the retrospective voter), while a rival makes the case for expectations about the future economy (the prospective voter). I conduct a time-series analysis combining consumer surveys and presidential approval polls (1960–1993). The results unequivocally reject the prospective claim and confirm the retrospective one. Depending on the measure used, economic expectations either prove too sensitive to political interventions (change in the White House, wars, and scandals) to shape presidential approval; or else, economic expectations do no more than encapsulate information about the current state of the economy. The research bears out the wisdom and the fairness of the retrospective calculus. To judge a president's performance in office is not a question about things to come but about things done.
Article
Classical economic voting theory has received considerable empirical support. Voters reward the incumbent for good times, punish it for bad. But the success of this paradigm, which views the economy as strictly a valence issue, has crowded out testing of other theoretical dimensions. In particular, positional and patrimonial economic voting have hardly been examined. The former concerns the different preferences voters have on economic policy issues, such as progressive taxation. The latter concerns the place of voters in the economic structure itself, not merely as members of a social class but as actual property owners. Through analysis of a special battery of economic items, from a 2008 US presidential election survey, we demonstrate that the economy was important to voters in three ways: valence, position, and patrimony. Taken together, these dimensions go far as an explanation of vote choice, at least with respect to the short-term forces acting on this political behavior.
Article
While economic voting has been much studied, almost all the work has been based on the classic reward-punishment model, which treats the economy as a valence issue. The economic is, indeed, a valence issue, but it is much more than that. In the work at hand, we explore two other dimensions of economic voting – position and patrimony. Through investigation of a 2010 UK election survey containing relevant measures on these three dimensions, we estimate their impact on vote intention, in the context of a carefully specified system of equations. According to the evidence reported, each dimension of economic voting has its own independent effect. Moreover, together, they reveal a “compleat” economic voter, who wields considerable power over electoral choice in Britain. This result, while new, confirms and extends recent work on US and French elections.
Article
Use of quarterly economic data in presidential job approval models implies that polls are reactions, in part, to quarterly economic performance. Perhaps this implication is not intended but it is due to the availability of low frequency economic data. We argue that voters have a shorter reaction time and do not wait for periodic data while the economy is in motion. We suggest the use of high frequency financial variables that proxy past, present and expected economic performance. Since opinions are formed based on continuous information, we also suggest employing Geweke type instantaneous feedback as well as traditional Granger type sequential causal feedback. The results show that for presidential candidates, weekly financial risk may be just as important as quarterly GDP growth or monthly unemployment.
Article
American elections depends substantially on the vitality of the national economy. Prosperity benefits candidates for the House of Representatives from the incumbent party (defined as the party that controls the presidency at the time of the election), whereas economic downturns enhance the electoral fortunes of opposition candidates. Short-term fluctuations in economic conditions also to appear to affect the electorates's presidential choice, as well as the level of public approval conferred upon the president during his term. By this evidence, the political consequences of macroeconomic conditions are both pervasive an powerful. But just how do citizens know whether the incumbant party has succeeded or failed? What kinds of economic evidence do people weigh in their political appraisals? The purpose of our paper is to examine two contrasting depictions of individual citizens - emphasizing the political signifigance of citizens' own economic predicaments, the other stressing the political importance.
Article
Some pundits argue that public support for Social Security privatization is unaffected by stock market downturns. Others worry that majorities might flip with each major market swing. Cross-sectional and longitudinal analyses support a third perspective, consistent with theories of a rational public, where citizens update their opinions in reasonable ways in response to changes in the Dow Jones Industrial Average, the Standard & Poor's 500 index, and an average of the major markets. Therefore, the stock market affects Social Security privatization attitudes, particularly when movements in the markets remind citizens of the risks inherent in investing. These findings open new possibilities and create new challenges for including the public in policy debates.
Book
The relationship between political and economic cycles is one of the most widely studied topics in political economics. This book examines how electoral laws, the timing of elections, the ideological orientation of governments, and the nature of competition between political parties influence unemployment, economic growth, inflation, and monetary and fiscal policy. The book presents both a thorough overview of the theoretical literature and a vast amount of empirical evidence. A common belief is that voters reward incumbents who artificially create favorable conditions before an election, even though the economy may take a turn for the worse immediately thereafter. The authors argue that the dynamics of political cycles are far more complex. In their review of the main theoretical approaches to the issues, they demonstrate the multifaceted relationships between macroeconomic and political policies. They also present a broad range of empirical data, from the United States as well as OECD countries. One of their most striking findings is that the United States is not exceptional; the relationships between political and economic cycles are remarkably similar in other democracies, particularly those with two-party systems.
Article
Does the economy hold the key to the ups and downs of the popularity of American presidents? This study, which is based on quarterly data from 1961 to 1980, employs stochastic models for time series (Box-Jenkins). For inflation, though not for unemployment, the findings confirm a significant effect at a lag of one quarter. The worries of political leaders about the inflation side of macroeconomic performance appear to be justified. Nevertheless, the influence of noneconomic factors such as international events, the Vietnam War, and Watergate proves even more potent. Moreover, presidential popularity is subject to a cycle whereby each president begins his service with an unearned popularity bonus that subsequently erodes. Economic performance is not found to be responsible for this inauguration-erosion cycle, but neither are rallies, wars, or scandal.
Article
This paper investigates the effect of the current recession on the retirement age population. Data from the Health and Retirement Study suggest that those approaching retirement age (early boomers ages 53 to 58 in 2006) have only 15.2 percent of their wealth in stocks, held directly or in defined contribution plans or IRAs. Their vulnerability to a stock market decline is limited by the high value of their Social Security wealth, which represents over a quarter of the total household wealth of the early boomers. In addition, their defined contribution plans remain immature, so their defined benefit plans represent sixty five percent of their pension wealth. Simulations with a structural retirement model suggest the stock market decline will lead the early boomers to postpone their retirement by only 1.5 months on average. Health and Retirement Study data also show that those approaching retirement are not likely to be greatly or immediately affected by the decline in housing prices. We end with a discussion of important difficulties facing those who would use labor market policies to increase the employment of older workers.
Article
This paper explores the link between changes in the aggregate value of corporate stock and changes in consumer spending. It presents data on the distribution of corporate stock ownership based on the 1998 Survey of Consumer Finances. It also uses time-series evidence on the comovement of stock market wealth and various categories of consumer spending to calibrate "the wealth effect." It concludes that in the year after a change in stock market values, consumer spending is likely to rise by between one and two cents for each dollar increase in the value of corporate stock.
Article
Speculations about the effects of politics on economic life have a long and vital tradition, but few efforts have been made to determine the precise relationship between them. Edward Tufte, a political scientist who covered the 1976 Presidential election for "Newsweek," seeks to do just that. His sharp analyses and astute observations lead to an eye-opening view of the impact of political life on the national economy of America and other capitalist democracies.The analysis demonstrates how politicians, political parties, and voters decide who gets what, when, and how in the economic arena. A nation's politics, it is argued, shape the most important aspects of economic life--inflation, unemployment, income redistribution, the growth of government, and the extent of central economic control. Both statistical data and case studies (based on interviews and Presidential documents) are brought to bear on four topics. They are: 1) the political manipulation of the economy in election years, 2) the new international electoral-economic cycle, 3) the decisive role of political leaders and parties in shaping macroeconomic outcomes, and 4) the response of the electorate to changing economic conditions. Finally, the book clarifies a central question in political economy: How can national economic policy be conducted in both a "democratic" and a "competent" fashion?
Comparative studies of the economy and the vote Encyclopedia of Comparative Politics Explaining presidential approval: the significance of issue salience
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Duch, R.M., 2007. Comparative studies of the economy and the vote. In: Boix, C., Stokes, S. (Eds.), Encyclopedia of Comparative Politics. Oxford University Press, Oxford. Edwards, G., Mitchell, W., Welch, R., 1995. Explaining presidential approval: the significance of issue salience. American Journal of Po-litical Science 39, 108–134.
It can now be applied to the stock market, since the market's impact on presidential support is important at least for citizens in the United States. Appendix. Data sources US Presidential approval rating: Gallup data compiled by Gerhard Peters
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Alesina et al., 1998). It can now be applied to the stock market, since the market's impact on presidential support is important at least for citizens in the United States. Appendix. Data sources US Presidential approval rating: Gallup data compiled by Gerhard Peters (American Presidency Project) – the figures
The Encyclopedia of Public Choice
  • M Paldam
Paldam, M., 2004. Vote and popularity functions. In: Rowley, C.K., Schneider, F. (Eds.), The Encyclopedia of Public Choice. Kluwer Academic Publishers, Dordrecht, pp. 49-59.
Economic voting Oxford Bibliographies in Political Sciences Political Control of the Economy
  • M Stegmaier
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Stegmaier, M., Lewis-Beck, M.S., 2013. Economic voting. In: Valelly, R. (Ed.), Oxford Bibliographies in Political Sciences. Oxford University Press, New York. forthcoming. Tufte, E.R., 1978. Political Control of the Economy. Princeton University Press, Princeton. C. Fauvelle-Aymar, M. Stegmaier / Electoral Studies 32 (2013) 411–417
The complete economic voter: new evidence from the UK. In: Paper Presented at the 6th European Consortium for Political Research General Conference Economic determinants of elec-toral outcomes
  • M S Lewis-Beck
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Lewis-Beck, M.S., Nadeau, R., Foucault, M., 2011. The complete economic voter: new evidence from the UK. In: Paper Presented at the 6th European Consortium for Political Research General Conference, Reykjavik, pp. 25–27. August 2011. Lewis-Beck, M.S., Stegmaier, M., 2000. Economic determinants of elec-toral outcomes. Annual Review of Political Science 3, 183–219.
Political Cycles and the Macroeconomy Rational exuberance: the stock market and public support for social security privatization
  • References Alesina
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References Alesina, A., Roubini, N., Cohen, G.D., 1998. Political Cycles and the Macroeconomy. MIT Press, Cambridge. Barabas, J., 2006. Rational exuberance: the stock market and public support for social security privatization. The Journal of Politics 68 (1), 50–61.
Presidential Approval Models Revisited: a New Perspective Working paper Available at: SSRN. http://ssrn.com/ abstract¼1927985
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Dicle, B., Dicle, M.F., 2011. Presidential Approval Models Revisited: a New Perspective. Working paper Available at: SSRN. http://ssrn.com/ abstract¼1927985. http://dx.doi.org/10.2139/ssrn.1927985 (accessed 05.03.12.).
The Oxford Handbook of Political Behavior
  • M S Lewis-Beck
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Lewis-Beck, M.S., Stegmaier, M., 2007. Economic models of voting. In: Dalton, R.J., Klingemann, H.-D. (Eds.), The Oxford Handbook of Political Behavior. Oxford University Press, Oxford, pp. 518-537.