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Populism and financial markets

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  • Hartwell, Christopher A.

Abstract

How do financial markets react to populist electoral success? Theoretically, the effect can go in one of two directions. In the first instance, populists tend to espouse resolutely anti-finance ideas, and thus a populist wave would be expected to be bad for financial returns across the board. On the other hand, populists also tend to enact various stimulus and redistributive schemes, and these policies could also give a boost to financial markets. Additionally, in the long-term, if populists become entrenched, they take over the commanding heights, meaning a need for functioning financial markets in order to provide capital for the elites. Utilizing new advances in the measurement of populism, this paper amasses a database of populist advances across developed economies since 2008 and arrays them against equity market performance. Using EGARCH-M volatility modelling on pooled data and event studies on specific episodes of populist success, this analysis reveals that a) populism's effect in the short run is mainly through volatility channels and b) populism's longer-term effects are highly dependent on the specific brand of populism and the country context in which populism operates.

Suggested Citation

  • Hartwell, Christopher A., 2022. "Populism and financial markets," Finance Research Letters, Elsevier, vol. 46(PB).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321004190
    DOI: 10.1016/j.frl.2021.102479
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    Cited by:

    1. Schütz, Claudio & Pape, Ulrich, 2024. "Are investors afraid of populism?," Finance Research Letters, Elsevier, vol. 61(C).

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    More about this item

    Keywords

    Populism; Political volatility; Uncertainty; EGARCH;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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