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Posted: 6/27/2012 01:21 EST

Want to Know Who's Going to Be President? Ask the Stock Market
By Robert Folsom | February 13, 2012

What's the biggest influence on the outcome of presidential elections?

Many observers would identify the role of campaign spending by super PACs, a candidate's debate performance, and, of course, the health of the economy ("stupid").

Yet if you want an answer backed by a large body of evidence, you'll find one in the recently-published, landmark research paper by Robert Prechter, Deepak Goel, Wayne Parker and Matthew Lampert, titled "Social Mood, Stock Market Performance and US Presidential Election."

A lot of time, data analysis, and copious statistical evidence led them to this straightforward result:

"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..."

In other words: If you want a good predictor for the result of an incumbent president's re-election, look to the stock market.

Large amounts of earlier research have focused on stock performance after a presidential election. But very few scholars have reversed that order, to investigate a possible link between elections and preceding stock market performance. So reverse that order is what the authors did. What's more, they're the only ones to study the issue from a socionomic perspective - the premise that waves of social mood simultaneously drive the valuations of stocks and sitting presidents.

The group published their research on January 17, and it's already getting attention. A Washington Post columnist read the paper and got its practical usefulness, by noting that Obama should benefit from a stock market that's been mostly higher since 2008, while a Republican challenger "should hope the Dow crashes."

You can read the research paper yourself by clicking here. At the top of the next page, click the link that reads, "One-Click Download".

This article is syndicated by The Socionomist, a publication of the Socionomics Institute, and was originally published under the headline Want to Know Who's Going to Be President? Ask the Stock Market. The Socionomist is designed to help readers understand and anticipate waves of social mood. Copyright © 2012 Socionomics Institute.