International evidence on the Democrat premium and the presidential cycle effect

International Review of Financial Analysis

2016

This survey starts by reviewing the literature investigating whether political connectedness of companies creates wealth for their shareholders. It then moves on to examine whether there is an association between the orientation of the political executive or the phase of the electoral cycle with movements of the stock market index. The price impact of politically-relevant events, such as wars, terrorist attacks, revolutions, coups or issuance of communications by those in positions of power is also discussed. The review closes with an examination of the impact of political uncertainty on stock markets and with a reflection on the direction of causality.JEL codes: G12; G14; G18; F50

Section: Political Business Cycle and Electionsmentioning

confidence: 99%

Is there a link between politics and stock returns? A literature survey

International Review of Financial Analysis

2016

“…Caution however is advised when implementing such strategies, as the results obtained for the US market are not directly generalizable in the global context (Cahan et al, 2005;Bohl and Gottschalk, 2006;Bialkowski et al, 2007).…”

Section: Political Developments and Asset Pricingmentioning

confidence: 99%

When the EU Leaders Speak, the Markets Listen

Moro

2012

SSRN Journal

We use content analysis software to examine certain characteristics of communications arising from European Council meetings. These characteristics appear to explain a large proportion of variation in stock returns around the meeting dates. More specifically, stock market investors react favorably when the conclusions and declarations issued by heads of states convey a positive sentiment and demonstrate a stance of moral rectitude. On the other hand, the returns tend to be negative when the communications are obfuscated by an excessive use of abstract words and fixated on regional rather than global issues. JEL Classifications: F50, G12, G14, G15

“…Instead of relying on the traditional dichotomy, the political spectrum is divided here into right, left and center. As will be demonstrated, this rather minor change in measurement helps to uncover rather interesting 2 Cahan et al (2005) and Bohl and Gottschalk (2006) examine whether political orientation of the ruling party determines stock returns in countries other than the U.S.. number of circumstances, elections may be called early (Cargill and Hutchison, 1991;Bialkowski et al, 2008), which exacerbates the political risk. Executives may also get entangled in complex coalition maneuvering, which could complicate the task of implementing their party manifesto.…”

mentioning

confidence: 99%

Political environment and foreign direct investment: Evidence from OECD countries

European Journal of Political Economy

Pathan

2014

This paper examines the role that political factors play in the investment location decisions of multinational enterprises. It has been found that foreign direct investors shy away from countries with excessive government spending, especially when this spending is directed towards the military. They also seem to have a slight preference for leftist executives and be negatively predisposed toward situations in which the ruling party has held power for prolonged periods of time. Ceteris paribus, more FDI flows to countries that have presidential systems, established political parties and where the party of the executive controls all houses with lawmaking powers. JEL classifications: F21; F50; P16