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Betting on presidential elections: Should we buy stocks connected with the winning party?

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  • Shen, Chung-Hua
  • Lin, Chih-Yung

Abstract

This study discusses whether political connection (PC) affects investor trading decisions. We approach the issue by examining the equity share trading of foreign investors, insiders, and individual investors, and the stock returns of politically connected firms in the 2008 Taiwanese presidential election. We classified investors into two categories, namely, more PC-based and less PC-based investors. More PC-based investors invest more in firms connected with the winning party and obtain higher abnormal returns, whereas the opposite holds for less PC-based investors. We posit that foreign investors are more PC-based, whereas insiders and individual investors are less PC-based. Evidence suggests that PC is influential in the trading decisions of investors.

Suggested Citation

  • Shen, Chung-Hua & Lin, Chih-Yung, 2015. "Betting on presidential elections: Should we buy stocks connected with the winning party?," The Quarterly Review of Economics and Finance, Elsevier, vol. 56(C), pages 98-109.
    • Handle: RePEc:eee:quaeco:v:56:y:2015:i:c:p:98-109
    DOI: 10.1016/j.qref.2014.09.007
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    More about this item

    Keywords

    Political connection; Trading decision; Firm value; PC-based investors;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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