relationships between the us financial markets and the election

0%

25%

50%

75%

100%

5/2/2016 6/1/2016 7/1/2016 7/31/2016 8/30/2016 9/29/20161,900

2,000

2,100

2,200

2,300

Overall Correlation

btwn Republicans and S&P: r=-0.41

Conventions

DateNotes: Iowa Election Markets, https://tippie.biz.uiowa.edu/iem/markets/pres16.html Daily Data, WTA: https://iemweb.biz.uiowa.edu/WebEx/marketinfo_english.cfm?Market_ID=362 S&P 500, adjusted close of day values

Trends Between Party Likelihood of Winning Election and S&P 500Daily Data, May thru Sept 2016, From Iowa Electronic Markets and S&P 500 Index

Trends Between Party Likelihood Of Winning Election And S&P 500

Brexit, June 27th

From May thru September 2016, Republicans averaged 30% while Democrats averaged a 70% likelihood of winning the election

• A big shift in the relationship between the S&P and party likelihoods occurred after July• The S&P 500 responded briefly to the Brexit vote, the prediction markets did not

S&P 500

Republicans,Avg=30%

Democrats,Avg=70%

Overall Correlation btwn Democrats and

S&P: r=0.37

S&P 500

Overall Correlation

btwn Republicans

and Democrats: r=-0.92

Like

lihoo

d of

Win

ning

Ele

ctio

n

July 5th

Chart 1

https://tippie.biz.uiowa.edu/iem/markets/pres16.html

https://iemweb.biz.uiowa.edu/WebEx/marketinfo_english.cfm?Market_ID=362

Correlations Shifted Between Party Likelihoods Of Winning The Election And The Stock Market After July ConventionsCorrelations between Democratic likelihood of winning the election with the S&P 500 market index shifted after the July conventions, becoming strongly positive

-0.16

-0.49-0.59

0.6

0.340.17

0.42

0.78

-0.58

-0.39

-1

-0.5

0

0.5

1

May June July Aug Sept

Democrats Republicans

Correlations Between Party Likelihood of Winning Election and S&P 500Daily Data Summarized by Month, May thru Sept 2016, From Iowa Electronic Markets and S&P 500 Index, Pearson Correlations

Notes: Iowa Election Markets, https://tippie.biz.uiowa.edu/iem/markets/pres16.html Daily Data, WTA: https://iemweb.biz.uiowa.edu/WebEx/marketinfo_english.cfm?Market_ID=362 S&P 500, adjusted close of day values

Cor

rela

tions

Month

Conventions

Chart 2



0

0.5

1

1.5

2

2.5

3

5/2/2016 6/1/2016 7/1/2016 7/31/2016 8/30/2016 9/29/20160

0.25

0.5

0.75

1

Term

Str

uctu

re Y

ield

s

DateNotes: Iowa Election Markets, https://tippie.biz.uiowa.edu/iem/markets/pres16.html Daily Data, WTA: https://iemweb.biz.uiowa.edu/WebEx/marketinfo_english.cfm?Market_ID=362 US Treasury Term Structure of Yields, https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

Relationships Between Party Likelihood of Winning Election and US Treasury YieldsDaily Data, May thru Sept 2016, From Iowa Electronic Markets and US Treasury Yields

Trends Between Party Likelihoods Of Winning Election And US Treasury Term Structure Yields

Republicans

Democrats

MaturityThirty Year

One Month

Political Party

Party Likelihoods

Beyond the obvious term structure (Thirty Year bonds have the highest yields, etc.), no clear and unambiguous trends emerge with party likelihoods

Chart 3



https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

Correlations Between Party Likelihoods Of Winning Election And US Treasury Term Structure Yields

Correlations Between Party Likelihood of Winning Election and US Treasury YieldsDaily Data , May thru Sept 2016, From Iowa Electronic Markets and US Treasury, Pearson Correlations

Republicans’ likelihoods are strongly positively correlated across the term structure for the full five months of data• The opposite relationship holds for Democrats’ likelihood• There is an exception in the relationships with the shortest rate, the One Month yield

Chart 4

Notes: Iowa Election Markets, https://tippie.biz.uiowa.edu/iem/markets/pres16.html Daily Data, WTA: https://iemweb.biz.uiowa.edu/WebEx/marketinfo_english.cfm?Market_ID=362 US Treasury Term Structure of Yields, daily data, https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield




-1

-0.5

0

0.5

1

-1

-0.5

0

0.5

1

OneMonth

ThreeMonth

SixMonth

OneYear

TwoYear

ThreeYear

FiveYear

SevenYear

TenYear

TwentyYear

ThirtyYear

Correlations Between Party Likelihood of Winning Election and US Treasury YieldsDaily Data, May vs Sept 2016, From Iowa Electronic Markets and US Treasury, Pearson Correlations


Relationships Between Party Likelihoods Of Winning Election And US Treasury Term Structure Yields: Republicans vs Democrats

Democrats Republicans

Cor

rela

tions

September 2016

May 2016

In May, 2016, the amplitudes of the party likelihoods damp down, while in Sept, 2016, the amplitudes increase

Maturity

Chart 5

- The relationships between party likelihood and yields flips in these two months




-1

-0.5

0

0.5

1

OneMonth

ThreeMonth

SixMonth

OneYear

TwoYear

ThreeYear

FiveYear

SevenYear

TenYear

TwentyYear

ThirtyYear

-1

-0.5

0

0.5

1

OneMonth

ThreeMonth

SixMonth

OneYear

TwoYear

ThreeYear

FiveYear

SevenYear

TenYear

TwentyYear

ThirtyYear

Correlations Between Republican Likelihood of Winning Election and US Treasury YieldsDaily Data, May vs Sept 2016, From Iowa Electronic Markets and US Treasury, Pearson Correlations

Correlations Between Democrat Likelihood of Winning Election and US Treasury YieldsDaily Data, May vs Sept 2016, From Iowa Electronic Markets and US Treasury, Pearson Correlations

Maturity

May Sept

May Sept

Cor

rela

tions

Cor

rela

tions

Relationships Between Party Likelihoods Of Winning Election And US Treasury Term Structure Yields: Trends Within Party

Chart 6


In May, 2016, the amplitudes of the party likelihoods damp down, while in Sept, 2016, the amplitudes increase

- The relationships between party likelihood and yields flips in these two months

relationships between the us financial markets and the election

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