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Price of a Surprise: The Effects of Election Outcomes on Stock Market Returns and Volatility

Author

Listed:
  • Arin K. Peren

    (College of Interdisciplinary Studies, Zayed University, Abu Dhabi, UAE)

  • Elmassah Suzanna

    (College of Interdisciplinary Studies, Zayed University, Abu Dhabi, UAE)

  • Kaplan Samuel

    (Facultad de Ciencias Económicas, Universidad Nacional de Córdoba, Córdoba, Argentina)

  • Spagnolo Nicola

    (Department of Economics, Brunel University London, Middlesex, UK)

Abstract

By utilizing a novel data set of 24 democracies for the 1972–2018 period, we investigate how election outcomes, including election surprises, are priced by the stock market. We show that an election surprise increases volatility but has no significant effect on excess returns. A win by a coalition announced prior to the election decreases volatility, however, a large winning percentage for the lead party within the coalition decreases excess returns. An unexpected winning margin over the closest competitor by the lead party decreases volatility by consolidating power, but only in parliamentary elections. Party orientation for the winning party affects neither excess returns nor volatility, even if it is unexpected.

Suggested Citation

  • Arin K. Peren & Elmassah Suzanna & Kaplan Samuel & Spagnolo Nicola, 2022. "Price of a Surprise: The Effects of Election Outcomes on Stock Market Returns and Volatility," Review of Economics, De Gruyter, vol. 73(3), pages 211-221, November.
    • Handle: RePEc:lus:reveco:v:73:y:2022:i:3:p:211-221:n:1
    DOI: 10.1515/roe-2022-0039
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    More about this item

    Keywords

    election; excess returns; surprises; volatility;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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