Are Stocks Affected by the Election?

Last Updated Nov 5, 2008 12:03 PM EST

Does a board's political affiliations affect its stock price? A paper by Indiana University's Eitan Goldman, ESMT European School of Management and Technology's Jorg Rocholl and UNC Chapel Hill's Jongil So has already asked that question.

Following the 2000 election, it looked at shares in S&P 500 businesses. Where at least one member of the board had a direct link to the victorious Republican party (that is, had been a member of Congress) that company's stock showed "positive abnormal" returns. Companies with Democratic board links showed a decrease in value.

Will the appointment of a Democratic Commander in Chief have the same effect on politically-linked boards? Not so far. The day of the election saw Wall Street stocks soar, but didn't do much for European equities, where the election effect had already been priced in, according to analysts. In the US, the Dow dropped 1.4 per cent, Standard & Poor's was down 1.19 per cent and Nasdaq fell 1.23 per cent.

Yes we can? The stockmarkets are evidently reserving judgement. The hope is that a new broom at the White House will revive US consumer confidence -- since it's currently recorded at an all-time low, it can only go up.