Stock market volatiltity around national elections

Jedrzej Bialkowski, Katrin Gottschalk and Tomasz Wisniewski

MPRA Paper from University Library of Munich, Germany

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 Day, 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 coalition with a majority of seats in parliament significantly contribute to the magnitude of the election shock. Our findings have important implications for the optimal strategies of risk-averse stock market investors and participants of the option markets.

Keywords: Political risk; National elections; Stock market volatility (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2006-01, Revised 2006-11
New Economics Papers: this item is included in nep-cdm, nep-cfn, nep-pbe, nep-pol and nep-rmg
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Journal Article: Stock market volatility around national elections (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:302

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