Stock Market Volatility around National Elections

Jedrzej Bialkowski, Katrin Gottschalk and Tomasz Wisniewski

No 2006,2, Working Paper Series from European University Viadrina Frankfurt (Oder), The Postgraduate Research Programme Capital Markets and Finance in the Enlarged Europe

Abstract: This paper investigates a sample of 27 OECD countries to test whether national elections induce higher stock market volatility. It is found that the countryspecific component of index return variance can easily double during the week around an Election Day, which shows that investors are surprised by the election outcome. Several factors, such as a narrow margin of victory, lack of compulsory voting laws, change in the political orientation of the government, or the failure to form a coalition with a majority of seats in parliament significantly contribute to the magnitude of the election shock. Our findings have important implications for the optimal strategies of risk-averse stock market investors and participants of the option markets.

Keywords: Political risk; National elections; Stock market volatility (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Stock market volatility around national elections (2008)
Working Paper: Stock market volatiltity around national elections (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:euvgra:20062

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