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WHEN ELECTIONS FAIL TO RESOLVE UNCERTAINTY: THE CASE OF THE 2016 U.S. PRESIDENTIAL ELECTION

Justin S. Cox and Todd G. Griffith

Journal of Financial Research, 2019, vol. 42, issue 4, 735-756

Abstract: In this article, we examine whether certain political election outcomes create, rather than resolve, uncertainty in financial markets. We posit that the market uncertainty associated with unanticipated election outcomes is not resolved before or on the election dates. To test this claim, we use the surprise outcome of the 2016 U.S. presidential election and two previous U.S. presidential elections as benchmarks. In contrast to prior elections, we find that the 2016 U.S. presidential election outcome did not resolve market uncertainty. Specifically, we show significant increases in transactions costs, adverse selection costs, and volatility in the days following the election date. We contribute to the literature by suggesting that unexpected elections can engender, rather than resolve, market uncertainty.

Date: 2019
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https://doi.org/10.1111/jfir.12194

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfnres:v:42:y:2019:i:4:p:735-756

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