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Minute-by-Minute: Financial Markets' Reaction to the 2020 U.S. Election

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  • Matthew DeHaven
  • Hannah Firestone
  • Chris Webster

Abstract

We find striking correlations between the presidential election outcome probability and major financial indicators, including USD currency pairs, bond prices, stock index futures, and a market volatility measure. The correlations are consistent with 'risk-on' behavior in markets, a term which describes investors moving toward riskier asset classes, as the election results became clearer. Further, we decompose the market reaction into a 'reduction in uncertainty' component and a 'probability of a Democratic party presidency' component. This decomposition reveals how markets reacted to the increasing certainty of the outcome as election results came in. Finally, we analyze the differing market reactions to the presidential election and the Senate election, including data from the unique Georgia runoffs, and demonstrate that bond prices were particularly sensitive to the probability of a combined Democratic Senate and Presidency.

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  • Matthew DeHaven & Hannah Firestone & Chris Webster, 2024. "Minute-by-Minute: Financial Markets' Reaction to the 2020 U.S. Election," Papers 2407.03527, arXiv.org.
    • Handle: RePEc:arx:papers:2407.03527
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    References listed on IDEAS

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    1. Brian Spears & Christina LaComb & John Interrante & Janet Barnett & Deniz Senturk-Dogonaksoy, 2009. "Examining Trader Behavior in Idea Markets: An Implementation of GE's Imagination Markets," Journal of Prediction Markets, University of Buckingham Press, vol. 3(1), pages 17-39, April.
    2. Reade, J. James & Vaughan Williams, Leighton, 2019. "Polls to probabilities: Comparing prediction markets and opinion polls," International Journal of Forecasting, Elsevier, vol. 35(1), pages 336-350.
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