Why Obama Won: It’s the Economy, Stupid

Peter S Magnusson ♦ November 3, 2008 ♦ 5 Comments

The day before the election, online odds-making markets peg Obama’s chances at 90%. But what’s more interesting is how correlated those odds have been with the stock market over the past year. If the market had not crashed, would Obama have won? (Update: McCain agrees: he pointed out in an interview today (12/14) that his poll numbers dropped with the Dow.)

An interesting piece over at (politically neutral?) TechCrunch notes that it not only seems as if Obama has already won, but the markets are pegging the odds at about 90%.

“Proper” markets for real-world events are not legal in the US – as opposed to the clearly well thought-out and regulated mortgage industry. Nevertheless, Intrade soldiers on, creating at least a stand-in. As noted in an interesting piece by Strumpf, historical (betting) markets proved quite accurate: “In the fifteen presidential elections between 1884 and 1940, the underdog in mid-October won only once (in the closely fought 1916 election).”

The common wisdom is that the financial crisis is the key factor in the (likely) Obama victory. So I had a peek at what a Dow Jones – vs – Obama-will-win-odds relationship might look like.

It’s quite remarkable (click on the graph for full size):

Dow Jones index vs Odds that Obama wins

The left (blue) scale shows the Dow Jones Industrial Average index for the period, and the right (red) index shows the Intrade value for Obama, approximating the percentage chance that he will win the Presidency.

The time series goes back to when Intrade started tracking Obama, back on October 24, 2006. The markets and Obama’s odds seem unrelated until about a year ago. After that, it’s almost eerie.