The Global Stock Market Reactions to the 2016 U.S. Presidential Election

Delia DiaconaÅŸu, Seyed Mehdian and Ovidiu Stoica
Authors registered in the RePEc Author Service: Delia Elena Diaconaşu

SAGE Open, 2023, vol. 13, issue 2, 21582440231181352

Abstract: Donald Trump’s victory in the 2016 presidential election was a political surprise to almost everyone, domestically and internationally. This paper investigates international investors’ reaction to this apparent global political surprise. Employing an event study methodology, we test the three widely known behavioral hypotheses concerning international investor reaction to this unexpected news, that is, the Overreaction Hypothesis (OH), the Uncertain Information Hypothesis (UIH), and the Efficient Market Hypothesis (EMH). The study results show that most of the indexes initially reacted unfavorably to the announcement of Trump’s win; however, subsequent stock index returns exhibit corrective upward patterns consistent with the predictions of the OH, except for the Latin American and France markets. The reactions of the other indexes appear to be favorable and in line with the prediction of the UIH. These findings suggest that in most countries under study, investors could utilize contrarian strategies to generate abnormal returns, as evidenced by price reversal following the arrival of the surprise. JEL classification : G14, G15.

Keywords: information market efficiency; international investors; unexpected news; U.S. presidential election; stock returns (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:sae:sagope:v:13:y:2023:i:2:p:21582440231181352

DOI: 10.1177/21582440231181352

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