Pricing politics: from betting odds to populist ballots

Political outcomes translate into asset prices through at least two channels that look different on the surface but share a common econometric handle. The first is discrete: elections and referendums are pre-scheduled events around which betting-market prices reveal continuously updated outcome probabilities. Combined with stock returns, those probabilities identify which firms the market treats as conditional winners or losers. The second is persistent: longer-run ideological shifts — notably the electoral rise of populist parties — alter policy expectations and priced uncertainty at the country level. Both channels can be read off market prices, and both admit clean identification when paired with the right external series (betting odds, election calendars, manifesto-based populism indices).

The agenda pursued in this line of work argues that the two channels are usefully analysed with a common, market-based probabilistic toolkit. The unit of measurement differs — individual stocks in the event setting, index options in the populism setting — but the logic is the same: use prices to recover what investors believe about political states of the world, and then ask whether those beliefs map onto theoretically motivated risk premia or subsequent returns.

Event-driven portfolios

The methodological core is developed in Political Event Portfolios (Hanke, Stöckl, Weissensteiner, Journal of Banking & Finance, 2020). Using betting-market odds to proxy for event-outcome probabilities, the paper estimates conditional stock sensitivities to those probabilities and forms long-short candidate baskets of expected winners and losers. Applied to the 2016 U.S. presidential election and the 2016 Brexit referendum, the approach yields portfolios whose sensitivities carry information about event-related returns beyond what firm characteristics predict. Recovering Election Winner Probabilities from Stock Prices (Hanke, Stöckl, Weissensteiner, Finance Research Letters, 2022) inverts the mapping: given the sensitivities estimated before the 2020 U.S. election, it shows how post-election winning probabilities can be backed out from stock prices alone during the protracted vote-counting window.

Populism and market outcomes

The Price of Populism (Rode, Stöckl, Journal of Economic Behavior & Organization, 2021) shifts the focus from single events to party-ideology trajectories. Using a novel dataset that combines Comparative Manifesto Project scores with index-option prices spanning national elections across Western democracies, the paper finds that populist electoral success moves implied volatility in domestic market indexes — and that the sign depends on ideology. Left-wing populism raises risk assessments; right-wing populism, often associated with rent-seeking and big-business alignment, lowers them. The mechanism is policy uncertainty priced through options rather than realised returns.

Ongoing and cross-cutting themes

What links the two strands is methodological: market prices as information filters, political events as measurable shocks, and external data (betting markets, election calendars, manifesto-based indices) providing the identifying variation. Open questions include finer intraday event-study designs around contested electoral nights, ideology-conditional risk premia over longer horizons, and the extent to which implied-probability inversion generalises beyond major U.S. elections.

Collaborators

Michael Hanke (University of Liechtenstein), Alex Weissensteiner (Free University of Bozen-Bolzano), Martin Rode (Universidad de Navarra)

Interactive

An accompanying Shiny application illustrating the event-portfolio construction is available at inno.uni.li/apps/ep/.