Abstract
This article analyses stock market reactions to election polls. Stock markets anticipate the impact of events on future cash flows. Current values depend on future cash flows and risk prospects. We posit that election polls are indications of the political platforms that are expected to win elections. Given the traditional philosophical differences between the Republican and the Democratic Parties, and the specific campaign promises of the US presidential candidates in the 2008 election, we hypothesize that stock market reacts negatively to the prospect of Barack Obama winning the election. We test this hypothesis by relating daily stock index returns to a lag value of differences in election polls that show Obama's advantage over John McCain. The results consistently show that stock market reacts negatively (positively) when Obama (McCain) has poll advantage over McCain (Obama). We conclude that there are differences in perception between Main Street and Wall Street.
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