STOCK MARKET CONSEQUENCES OF POLITICAL VIBRANCY

Christos Pantzalis and Jung Chul Park

Journal of Financial Research, 2020, vol. 43, issue 3, 491-542

Abstract: We define areas with strong geographic ties to powerful politicians as politically vibrant and show that they are characterized by greater value‐relevant information generation and symptomatic of equity market segmentation. Political vibrancy entails greater levels of local bias and local comovement and has two important return predictability implications. First, it enhances local institutions’ informational advantages; their trades’ ability to forecast local stock returns exceeds that of nonlocal institutions. Second, in support of the view that information diffuses slowly into prices, stock returns of firms from politically vibrant areas predict returns of similar firms in other areas.

Date: 2020
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https://doi.org/10.1111/jfir.12218

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfnres:v:43:y:2020:i:3:p:491-542

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