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The price of populism: Financial market outcomes of populist electoral success

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  • Stöckl, Sebastian
  • Rode, Martin

Abstract

Following financial research on the importance of public policy for asset prices, we hypothesize that the success of populist movements impacts risk assessments in financial markets. Building a novel dataset, findings show for a sample of Western democracies that the success of populist parties has a direct impact on volatility in major domestic market indexes, measured from option prices spanning national elections. Despite its anti-capitalist rhetoric, the political insecurity generated by populist movements on the far left only partially translates into financial insecurity in the context of institutionalized democracies. In turn, we find the electoral success of right-wing populists to reduce risk assessments, which could be driven by its frequent association with rent-seeking and big business.

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  • 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.
    • Handle: RePEc:eee:jeborg:v:189:y:2021:i:c:p:51-83
    DOI: 10.1016/j.jebo.2021.06.037
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    2. Jante Parlevliet & Massimo Giuliodori & Matthijs Rooduijn, 2023. "Populist attitudes, fiscal illusion and fiscal preferences: evidence from Dutch households," Public Choice, Springer, vol. 197(1), pages 201-225, October.
    3. Celico, Andrea & Rode, Martin & Rodriguez-Carreño, Ignacio, 2024. "Will the real populists please stand up? A machine learning index of party populism," European Journal of Political Economy, Elsevier, vol. 82(C).
    4. Krieger, Tommy, 2024. "Rechtspopulismus und Standortattraktivität," ZEW Expert Briefs 24-01, ZEW - Leibniz Centre for European Economic Research.
    5. Daniel L. Bennett & Christopher Boudreaux & Boris Nikolaev, 2023. "Populist discourse and entrepreneurship: The role of political ideology and institutions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 54(1), pages 151-181, February.
    6. Pan, Wei-Fong, 2023. "The effect of populism on high-skilled migration: Evidence from inventors," European Journal of Political Economy, Elsevier, vol. 79(C).
    7. Luisa Doerr & Niklas Potrafke & Felix Roesel & Luisa Dörr, 2021. "Populists in Power," CESifo Working Paper Series 9336, CESifo.
    8. Strobl, Martin & Sáenz de Viteri, Andrea & Rode, Martin & Bjørnskov, Christian, 2023. "Populism and inequality: Does reality match the populist rhetoric?," Journal of Economic Behavior & Organization, Elsevier, vol. 207(C), pages 1-17.
    9. Schütz, Claudio & Pape, Ulrich, 2024. "Are investors afraid of populism?," Finance Research Letters, Elsevier, vol. 61(C).
    10. Pan, Wei-Fong, 2023. "Household debt in the times of populism," Journal of Economic Behavior & Organization, Elsevier, vol. 205(C), pages 202-215.

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    More about this item

    Keywords

    Populism; Elections; Political uncertainty; Option markets; Implied volatility; Political ideology;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • P43 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Finance; Public Finance

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