TL;DR: I compared how the price of $SPY compares with Biden/Trump’s odds of winning and found there was no correlation whatsoever. I will explain how I did this like you are retarded, because you are retarded.
Trades: Directional bets that aren’t on specific stocks/sectors are dumb. Trade condors or something if you want to play SPY.
We want to answer the question: Does the $SPY get uppies or downies when Biden’s odds of winning go up?
Look below to see how
Kamala’s Biden’s (and inversely Trump’s) odds on PredictIt compare with the price of $SPY. If we assume the gambling machines of the market and PredictIt are reasonably efficient, then traders are betting on the same information at the same time. If there is a relationship between these time series we can pull it out. Moreover, since we don’t expect there to be any lag in information response we don’t have to do anything fancy like autocorrelation. (Note: there is some weirdness in that PredictIt data is polled at midnight ET and market data is at market close, 4pm ET).
To find this relationship, we can instead see how the daily changes are related to each other. Plotted below are those daily changes over the last ~4 months.
Now, we can plot the changes in odds and the changes in $SPY price directly against each other to extract the line that shows how the two are related.
Uh oh! The R squared is 0.003. R squared is a number that tells us how well the line fits the data. If it’s close to one, then the line is very good. If it’s close to zero, then the fit is very bad. This fit is very bad. There does not appear to be any relationship between which candidate is expected to win and the price of the S&P 500.
You might say “Look, the line points slightly down.
Kamala Biden is bad for the market.” But then we can look at the uncertainty of that slope. The slope uncertainty is twice the reported slope. The slope reported by the fit estimate is not meaningful.
Positions: Cash. Sorry.
Edit: I’ll take up to 5 requests, one per person to do the same analysis on individual tickers. A few examples below.
GEO This one’s the opposite of what I expected and with the least relative uncertainty
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.