Partisan policy promises and sector-specific stock-market performance: evidence from Mexico's 2006 presidential campaign

Abstract

Scholars have long held that partisan politics cause aggregate-level fluctuations in markets. However, if investors hold different policy preferences, the effects of election campaigns on their behavior should be more nuanced. In particular, investors in economic sectors benefiting from neo-liberal economic policies might respond favorably to gains in support by right-leaning candidates, whereas those expected to profit from state-led economic development might react favorably to gains by left-leaning contenders. To test these propositions, I examine stock market performance by economic sector during Mexico's 2006 presidential race. Statistical analysis of pre-election polls and stock market returns during the campaign reveals that, although investors did not react to potential partisan policy change in the ways originally expected, they did respond to polling news differently by economic sector. The findings demonstrate the importance of disaggregating stock, bond, and currency markets according to economic criteria, and thus the limitations of aggregate level analysis for research on politics and markets.

A literature review on political uncertainty and stock market behaviour

“…Yet the PBC symptoms are much more prevalent in non-industrialized nations with democratic political structures (Block and Vaaler, 2004). In addition, the adverse impacts on economic growth and societal development of emerging nations facing regime instability (whether linked or unrelated to elections) are more severe, leading to far more dramatic shifts in stock-market returns and/or volatility (Benton, 2013;Chau et al, 2014;Jensen and Schmith, 2005;Lumiajiak et al, 2014). Obinger et al (2014) Setting up reforms in umbral legislation to make policy changes more complicated, and implementing substantial restrictive measures shortly after the general elections, are examples that also support the notion of the PBC.…”