Daily Judgement: Political News and Financial Markets

Michael Breen (), Iain McMenamin, Michael Courtney and Gemma McNulty

New Political Economy, 2021, vol. 26, issue 4, 616-630

Abstract: Political economists disagree about the extent to which markets monitor politics in advanced economies. Some argue that investors are interested in a handful of macroeconomic indicators, while others say that markets also watch political competition closely. We argue that political competition drives variation in the government bond market more than information about economic policy. Using a new automatic classifier, we code the content of millions of newspaper paragraphs about the UK from 1986 to 2012. We then test the impact of news on government debt. We find that political news is correlated with bond prices and that macroeconomic policy news is not. Our results suggest that the market passes daily judgement on politics, not merely cleaving to seldom-released official statistics or focusing on occasional events like elections.

Date: 2021
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DOI: 10.1080/13563467.2020.1806221

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