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Political uncertainty and stock market volatility: new evidence from the 2014 Scottish Independence Referendum

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  • Julia Darby
  • Graeme Roy

Abstract

We investigate the impact of heightened political uncertainty in the run‐up to, and after, the 2014 Scottish independence referendum. The conditional volatilities of stock returns of our Scottish index and the FTSE all share index are characterised by the same GARCH parameters for a sample ending in late 2013, but this no longer holds when estimation extends closer to the referendum. The relative volatility of Scottish companies’ stock returns peaked when polls indicated the referendum result was ‘too close to call,’ fell back on the result, but rose again in the run‐up to publication of proposals for further devolution.

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  • Julia Darby & Graeme Roy, 2019. "Political uncertainty and stock market volatility: new evidence from the 2014 Scottish Independence Referendum," Scottish Journal of Political Economy, Scottish Economic Society, vol. 66(2), pages 314-330, May.
    • Handle: RePEc:bla:scotjp:v:66:y:2019:i:2:p:314-330
    DOI: 10.1111/sjpe.12186
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    Cited by:

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    2. Czudaj Robert L., 2020. "The role of uncertainty on agricultural futures markets momentum trading and volatility," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 24(3), pages 1-39, June.
    3. Bruce Morley, 2023. "The Effects of Direct Democracy on Stock Market Risk and Returns: An Event Study from Switzerland," Risks, MDPI, vol. 11(2), pages 1-13, January.
    4. Zhibing Li & Jia Liu & Jie Liu & Xiaoyu Liu & Yinglun Zhu, 2024. "The causal effect of political risk on the stock market: Evidence from a natural experiment," Australian Economic Papers, Wiley Blackwell, vol. 63(1), pages 145-162, March.
    5. Julia Darby & Jun Gao & Siobhan Lucey & Sheng Zhu, 2019. "Is heightened political uncertainty priced in stock returns? Evidence from the 2014 Scottish independence referendum," Working Papers 1913, University of Strathclyde Business School, Department of Economics.

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    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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