2012-02-14

Socionomic research shows stock market is a predictor of presidential elections

Social Mood, Stock Market Performance and U.S. Presidential Elections: A Socionomic Perspective on Voting Results

Here is the abstract:
We analyze all US presidential election bids. We find a positive, significant relationship between the incumbent’s vote margin and the prior net percentage change in the stock market. This relationship does not extend to the incumbent’s party when the incumbent does not run for re-election. We find no significant relationships between the incumbent’s vote margin and inflation or unemployment. GDP is a significant predictor of the incumbent’s popular vote margin in simple regression but is rendered insignificant when combined with the stock market in multiple regression. Egotropic and sociotropic voting hypotheses fail to account for the findings. The results are consistent with socionomic voting theory, which includes the hypotheses that (1) social mood as reflected by the stock market is a more powerful regulator of re-election outcomes than economic variables such as GDP, inflation and unemployment and (2) voters unconsciously credit or blame the leader for their mood.
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Here's are two important passage with regards to socionomic theory.
Prechter [5] posited that social mood—the aggregate, unconscious levels of optimism and pessimism in a society—emerges spontaneously in self-organizing human social systems, fluctuates according to an internally regulated growth process described by Elliott’s [25] wave model, is impervious to economic and political stimuli, and drives collective human action and non-rational decision-making unconsciously in contexts of uncertainty. Presidential elections—the focus of our study—appear to qualify as a context of uncertainty. Delli Carpini and Keeter [26], Blendon, et al., [27] Paldam and Nannestad [28], and Aidt [29] have documented convincingly the typical voter’s pervasive ignorance and uncertainty with respect to information about elections. Rahn [30] found that ―public mood‖ may be an important influence upon political decision-making, concluding that the degree of uncertainty accounts for the extent to which mood influences political behavior.
One thing to keep in mind is that the greater the uncertainty, the greater the role for social mood. An individual investor who does extensive fundamental research on stocks will make rational choices between investments. In politics, how many rational independents are in the electorate? People who pay a lot of attention to politics are likely to choose a side and vote consistently. It is the uniformed voters, the moderates or swing-voters, who rely on mood.
Under the hypothesis that changes in social mood unconsciously impel humans to take social actions expressing their moods, socionomic theory proposes that changes in indicators of social mood can be used to anticipate the direction and character of social trends, including those in politics.
Here is the chart presented in the paper.

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