Stock market volatility around national elections |
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Authors: | Jędrzej Białkowski Katrin Gottschalk Tomasz Piotr Wisniewski |
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Affiliation: | 1. Auckland University of Technology, Department of Finance, Business School, Private Bag 92006, Auckland 1142, New Zealand;2. University of Leicester, School of Management, Ken Edwards Building, University Road, Leicester LE1 7RH, United Kingdom |
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Abstract: | This paper investigates a sample of 27 OECD countries to test whether national elections induce higher stock market volatility. It is found that the country-specific component of index return variance can easily double during the week around an election, which shows that investors are surprised by the election outcome. Several factors, such as a narrow margin of victory, lack of compulsory voting laws, change in the political orientation of the government, or the failure to form a government with parliamentary majority significantly contribute to the magnitude of the election shock. Furthermore, some evidence is found that markets with short trading history exhibit stronger reaction. Our findings have important implications for the optimal strategies of institutional and individual investors who have direct or indirect exposure to volatility risk. |
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Keywords: | G11 G12 G14 |
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