Is There a Link between Politics and Stock Returns? A Literature Survey

Abstract

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

The Influence of General Strikes on Stock Market Behavior

“…By 'Chief Executive' we mean a prime minister in parliamentary systems or a president in presidential systems. Secondly, there has been a debate amongst scholars as to whether the political orientation of the executive holds ramifications for the distribution of stock returns (see Wisniewski (2016) for a literature review on this topic).…”

“…With regard to political orientation, our dataset allows us to partition the political spectrum into three segments. All of the previous papers in the field applied a simple left-wing / right-wing categorization, without any allowance for centrist executives (for a list of these papers see Wisniewski (2016)). Our results are similar to those reported in Gottschalk and Bohl (2006) who fail to detect any significant return differences between left-and right-leaning leaders in a panel of 15 countries.…”

Political uncertainty and the US market risk premium

“…Instead, I concentrate solely on the relationship between political uncertainty and the market risk premium. For a broader perspective, the reader is referred to the recent literature survey by Wisniewski (2016).…”

The stock-bond nexus and investors’ behavior in mature and emerging markets

“…Perhaps worth mentioning here is that exogenous events such as for instance natural or anthropogenic catastrophes, social unrest, political upheavals, terrorism and other violent events such as conflict and war, can also exert an impact on the stock-bond correlation over the short run (Schneider and Troeger, 2006;Apergis et al, 2017;Guidolin and La Ferrara, 2010;Wisniewski, 2016). These largely unanticipated events have the potential to generate uncertainty, adversely influence risk perceptions and exert a negative effect on investors' sentiment and their concomitant assessment of markets.…”