Effects of election results on stock price performance: evidence from 1980 to 2008

Abstract

If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -The authors aim to analyze whether the results of the 1980 to 2008 US presidential elections influence the stock market performance of eight industries and they seek to examine factors that are expected to affect firms' stock returns around these elections. Their empirical analysis reflects firms' exposure to government policies in two ways. Design/methodology/approach -First, to determine whether investors presume any Democratic or Republican favoritism towards or biases against certain industries, the authors perform an event study for each of the eight industries around the eight elections. Second, the authors include the firms' marginal tax rate as proxy for the firms' exposure to uncertainty about fiscal policy in a regression analysis. Findings -The authors do not find a consistent pattern in industry returns when comparing the effect of Democratic vs Republican victories. However, the extent of the reaction differs among industries. The victory of a Democratic candidate rather negatively influences overall stock returns, while the results are rather mixed for Republican victories. A change in presidency from either a Democratic to a Republican candidate or vice versa causes stronger stock market effects than re-election or the election of a president from the same party. The authors also find that the firms' marginal tax rate is positively correlated with abnormal stock price returns around the election day. Originality/value -The results are relevant for academics, investors and policy makers alike because they provide insight on the question whether stock market participants respond to expected changes in policy making as a result of presidential elections.

General election effect on the network topology of Pakistan’s stock market: network-based study of a political event

“…Additionally, political events capture investor attention due to the possible revision of their investment strategies, depending on the outcome of the event (Pástor and Veronesi 2013). Previous research proposes various methods to study the impact of elections on stock markets [e.g., GARCH and Cumulative abnormal volatility (CAV) (Białkowski et al 2008), Support vector regression (Chiu et al 2012), Cumulative average abnormal returns (CAAR) and Abnormal returns AR (Oehler et al 2013;Savita and Ramesh 2015), Regression analysis (Abidin et al 2010;Liew and Rowland 2016) Granger cointegration and Johansen test (Goodell et al 2015), and DCC bivariate GARCH (Sultonov and Jehan 2018)].…”

Is the effect of a political event more pronounced for government controlled firms?

“…Suryawijaya & Setiawan, 1998;Chen et al 2005;Oehler et al 2012). Indonesian capital market is considered as semi-strong with respect to its market efficiency.…”

“…Previous studies (Suryawijaya & Setiawan, 1998;Chen et al 2005;Oehler et al 2012;Guidolin & Ferrara, 2010;Christofis et al 2013) reveal that political events have significant informational content and mostly find negative abnormal return due to the use of terrible political incidents. However, as the event here is a presidential election, this study expects that market will react, yet, how market reacts is unpredictable.…”

“…In general, the result shows that the stock market reacts to political events as shown by the presence of significant abnormal return around the event dates. Oehler et al (2012) study the market reaction during US election in 1976-2008. They find the presence of significant abnormal return in the most industries, both in positive and negative value.…”

Test of Linkage between Governance Style and National Economic Indices

“…Inflation-unemployment interplay as well as other key macroeconomic parameters are at the mercy of the ruling party possibly due to the fusion of monetary and fiscal government agencies. Accordingly, Oehler, Walker and Wendt, (2011) observe that through sector-specific government policies, stock market performance may be distortorted prior to an election window. They conclude that party's ideology has a way of impacting significantly on market returns.…”