Divided governments and futures prices

Elvira Sojli and Wing Wah Tham

Journal of Econometrics, 2015, vol. 187, issue 2, 622-633

Abstract: This paper investigates the effect of divided governments on asset prices. For identification, we use changes in the implied probability of a divided government while votes are being counted. Using high frequency data from the betting market and US overnight futures market, we estimate a 1.4% decrease in the S&P 500 futures in the election event of a divided government. Results are similar for the 2010 UK election. Further analysis shows that divided government affects expected stock returns through the mechanism of policy uncertainty.

Keywords: Divided government; Elections; Expected returns; Policy uncertainty; Prediction markets (search for similar items in EconPapers)
JEL-codes: D72 E6 G12 G13 G14 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:187:y:2015:i:2:p:622-633

DOI: 10.1016/j.jeconom.2015.02.043

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