Social Mood, Politics and the Stock Market

Here is an interesting perspective on predicting the outcome of presidential elections. According to socionomic theory, bear markets come with a downturn in crowd psychology. When the crowd turns from optimism to pessimism, it is first seen in stocks, and then the rest of the economy, politics, culture. A president who is in the office during a bear market gets the blame. The aggregate anger turns against those at the helm. Economy suffers because pessimistic people do not expand economic activities. They contract. A president who is in the office during a bull market is praised. This is because the population’s aggregate mood is positive (as reflected in stocks) and the incumbent benefits from this social trend.

On Nov. 2, 2012, the latest research paper from the Socionomics Institute, “Social Mood, Stock Market Performance and US Presidential Elections,” published in Sage Open, a peer-reviewed journal of the social and behavioral sciences.

The paper’s authors, Robert Prechter and Deepak Goel of the Socionomics Institute, the late Wayne Parker of Emory University and Matthew Lampert of Cambridge University and the Socionomics Institute, have achieved an important advancement in the study of social mood’s influence on politics, and have received media attention from The New York Times, CNN, The Wall Street JournalForbes, and many other significant outlets.

Why?

The “Elections” paper shows a significant positive relationship between net changes in stock prices prior to Election Day and incumbents’ chances for re-election. The authors contend that the stock market does not reliably affect elections, and election outcomes do not reliably affect the stock market. Rather, they say, social mood regulates both.

The key point in the paper is the stock market’s performance in the years prior to Election Day. Consider this chart:

To watch a FREE presentation on the paper — given by Bob Prechter himself — at this year’s Social Mood Conference, simply follow this link.

The paper is available for free download from the Social Science Research Network – a vital resource for scholars, researchers and the educated public that currently boasts over 350,000 papers. “Social Mood, Stock Market Performance and US Presidential Elections” is SSRN’s 3rd most downloaded paper of the past 12 months and among its top 100 all-time. Download the paper from SSRN here.

Here is another video from Robert Prechter where he explains his view of cause and effect in the markets and how social mood drives the market behavior, instead of markets and events driving the mood:

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