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Information in stock prices: the case of the 2016 U.S. presidential election

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  • Benjamin M. Blau
  • Todd G. Griffith
  • Ryan J. Whitby

Abstract

On the day before the 2016 U.S. presidential election, the odds of Hillary Clinton winning the presidency, according to political prediction markets, were above 90%. Surprisingly, Donald Trump won the Electoral College handily. In this study, we examine how movements in specific stock prices foreshadowed the eventual outcome. Specifically, we conduct a series of standard event-study tests focused on pharmaceutical companies, which became a focal point during the presidential campaign. Results show that while stocks of pharmaceutical companies significantly underperformed the market prior to the election, prices substantially increased beginning three days before the election outcome. This increase is both statistically significant and economically meaningful and robust to various event-study methodologies. These results suggest that some sectors of the stock market seemed to anticipate the election outcome.

Suggested Citation

  • Benjamin M. Blau & Todd G. Griffith & Ryan J. Whitby, 2019. "Information in stock prices: the case of the 2016 U.S. presidential election," Applied Economics, Taylor & Francis Journals, vol. 51(40), pages 4385-4396, August.
    • Handle: RePEc:taf:applec:v:51:y:2019:i:40:p:4385-4396
    DOI: 10.1080/00036846.2019.1591608
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    Cited by:

    1. Delia DiaconaÅŸu & Seyed Mehdian & Ovidiu Stoica, 2023. "The Global Stock Market Reactions to the 2016 U.S. Presidential Election," SAGE Open, , vol. 13(2), pages 21582440231, June.
    2. Narayan, Shivani & Kumar, Dilip & Bouri, Elie, 2023. "Systemically important financial institutions and drivers of systemic risk: Evidence from India," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).

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