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Political event portfolios

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  • Hanke, Michael
  • Stöckl, Sebastian
  • Weissensteiner, Alex

Abstract

We use data from betting markets to analyze the sensitivity of stock returns to potential outcomes of political events such as elections. By classifying stocks into expected conditional winners and losers prior to such an event, we form portfolios that generate large positive returns after the event date, conditional on correctly anticipating the outcome. The approach is illustrated using data from the 2016 US presidential election and the 2016 Brexit referendum. We show that these sensitivities contain information about event-related returns beyond that of firm characteristics whose predictive power has been documented in the literature.

Suggested Citation

  • Hanke, Michael & Stöckl, Sebastian & Weissensteiner, Alex, 2020. "Political event portfolios," Journal of Banking & Finance, Elsevier, vol. 118(C).
    • Handle: RePEc:eee:jbfina:v:118:y:2020:i:c:s0378426620301497
    DOI: 10.1016/j.jbankfin.2020.105883
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    References listed on IDEAS

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    1. Hanke, Michael & Poulsen, Rolf & Weissensteiner, Alex, 2018. "Event-Related Exchange-Rate Forecasts Combining Information from Betting Quotes and Option Prices," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 53(6), pages 2663-2683, December.
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    Cited by:

    1. Hanke, Michael & Stöckl, Sebastian & Weissensteiner, Alex, 2022. "Recovering election winner probabilities from stock prices," Finance Research Letters, Elsevier, vol. 45(C).
    2. Stöckl, Sebastian & Rode, Martin, 2021. "The price of populism: Financial market outcomes of populist electoral success," Journal of Economic Behavior & Organization, Elsevier, vol. 189(C), pages 51-83.
    3. Herold, Michael & Kanz, Andreas & Muck, Matthias, 2021. "Do opinion polls move stock prices? Evidence from the US presidential election in 2016," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 665-690.

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    More about this item

    Keywords

    Betting odds; Political event portfolios; Political uncertainty;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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