NEW YORK — Wall Street is set up for a major crash if Donald Trump shocks the world on Election Day and wins the White House.

New research out on Friday suggests that financial markets strongly prefer a Hillary Clinton presidency and could react with panicked selling should Trump defy the polls and deliver a shocking upset on Nov. 8.

“Wall Street clearly prefers a Clinton win certainly from the prospective of equity prices,” said Dartmouth College’s Eric Zitzewitz, one of the authors of the new study along with the University of Michigan’s Justin Wolfers. “You saw Clinton win the first debate and her odds jumped and stocks moved right along with it. Should Trump somehow manage to win you could see major Brexit-style selling.”

Stock prices around the world tanked over the summer when British voters surprised pundits and voted in favor of pulling the country out of the European Union. Trump himself now talks about his own upset prospects as “another Brexit.”

The report also shows where investors around the world are making big money on the 2016 campaign. Traders betting on the Mexican peso to take a beating under a President Trump, who has promised a trade crackdown, have lost big following debates in which Clinton did well.

After hitting new lows against the dollar during Trump’s rise to the GOP nomination, the peso has spiked higher following the debates and after the release of the audiotape showing Trump making disparaging remarks about women.

The Trump effect also shows up for traders betting on market volatility. Futures contracts for the VIX index, which tracks market volatility, fell sharply during the first debate, suggesting investors expect much less volatility under a Clinton White House than a Trump White House.

Oil prices rose during the first debate and gold fell. Gold tends to be a safe haven when investors are worried about possible economic and financial instability. And oil tends to go up when investors expect stronger economic growth and more demand for energy.

Traders and money managers betting on a Clinton win could wind up in trouble if the outcome goes the other way. Michael Obuchowski of Merlin Asset Management has watched every move in the campaign closely— including all the WikiLeaks email dumps on Clinton — and made two calls based on it: that Clinton will win and that she won’t go as far left as some investors initially feared.

“I always assumed Trump would eventually collapse so that meant staying in equities and going away from certain high-dividend stocks assuming Clinton is going to win and try and tax those dividends at a higher rate,” he said. “And I watched all the WikiLeaks and they are positive from an investment perspective especially for bank stocks because it looks like her moves left were more in response to Bernie Sanders rather than her actual beliefs.”

The new report suggests that the stock market is worth 11 percent more under a Clinton presidency than a Trump presidency. This is a highly unusual circumstance because markets historically prefer Republican policies on taxes, regulation and trade to those of Democrats.

And while Trump has pledged to rip up free trade deals and slap tariffs on imports, he has also pledged massive tax cuts on individuals and businesses, policies that Wall Street investors usually embrace.

Current market action is the direct reverse of what happened in 2012 when President Barack Obama was running for reelection against former Massachusetts Gov. Mitt Romney. When Romney clearly beat Obama in the first debate, markets rallied. The study looked at presidential races dating back to 1880 and found that markets typically preferred the GOP nominee. The difference has been narrowing over the years. Until 2016. Investors now clearly back a Clinton presidency and by a large margin.

The Trump effect is also global.

Britain’s FTSE 100 traced U.S. stock prices higher following the first debate. Currencies in Canada, South Korea, Australia and New Zealand — all major U.S. trading partners — tend to rise when it appears Clinton is doing well and headed to victory.

“All told, these movements suggest that financial markets expect a generally healthier domestic and international economy under a President Clinton than under a President Trump,” Wolfers and Zitzewitz write in their new paper.

But there is also evidence that Wall Street investors playing the 2016 election for profit have largely already made their money. U.S. equity prices showed little movement after the third debate, which scientific polls also suggest Clinton won handily.

The Mexican peso spiked again in the moments after the debate ended. But it sagged lower on Thursday suggesting that the dollar-peso trade is no longer a big play for Wall Street.

Online betting markets are now pricing in an over 80 percent chance that Clinton wins. Betting site PaddyPower is so certain that Clinton will win that it is already paying out $1.1 million to investors who bought contracts betting on the Democratic nominee.

“At this point, even though the odds are so high that it’s all but certain Clinton wins, it’s best to hedge right now,” said Christopher Vecchio, currency analyst at DailyFX. “Maybe look at some short options or look at dollar-Mexican peso longs to hedge off the risk.”

This also suggests that a shock Trump victory next month could crush stock prices, perhaps by as much as 10 percent, and send the peso and other currencies sharply lower while ushering in a period of intense market volatility as investors try and discern how Trump would govern and whether he would make good on his pledge to start trade wars with Mexico and China and deport 11 million current undocumented immigrants.

“You would see incredible pressure on stock prices if Trump wins and everyone flooding into rare metals like gold and into bonds” in the U.S., Germany and the United Kingdom, said Erik Jones, professor at the Johns Hopkins University School of Advanced International Studies.

Jones said the depth of markets for so-called “safe haven” assets could be severely tested should Trump win. “The gold markets are just not deep enough to hold this much scare,” he said.

Overall, the authors of the new paper envision a massive global market shock should Trump win. “Given the magnitude of the price movements, we estimate that market participants believe that a Trump victory would reduce the value of the S&P 500, the UK, and Asian stock markets by 10-15%,” they write and “would reduce the oil price by $4, would lead to a 25% decline in the Mexican Peso, and would significantly increase expected future stock market volatility.”

There remains one bright spot for Wall Street should Trump shock the world. In the immediate aftermath, investors could bet on high volatility in stocks and a sharp rise in gold and other safe havens. And then they could bet on a recovery as occurred in the weeks following the Brexit vote.

“You could bet on an initial adverse reaction and a bounce back after the initial shock,” said Gregory Daco of Oxford Economics. “But that would require you to take the risk that he does actually tone down some of his positions.”

Source: Ben White,