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The stock market reaction to political and economic changes: the Spanish case

Author

Listed:
  • Leticia Castaño

    (Universitat de València)

  • José E. Farinós

    (Universitat de València)

  • Ana M. Ibáñez

    (Universitat de València)

Abstract

As other European countries, Spain has experienced a turmoil in which new political parties emerged with force after the global financial crisis in 2008. In this context, we analyze whether the empirical implications of the opportunistic and partisan theories, as well as the Uncertain Information Hypothesis, are met in the Spanish stock market, considering the size and the industry of the companies. The horizon of our study takes into account the seven general elections, 24 regional elections and 4 European elections held from 2002 to 2019, period in which Spain is fully integrated in the economic and monetary union and under the macroeconomic imbalance procedure. Our results do not support the opportunistic and partisan theories, or the Uncertain Information Hypothesis. Our evidence suggests that the short-term negative market reaction to the general elections is linked to the uncertainty with a change in the political sign of the incumbent. Besides, it is not related to size or industry characteristics.

Suggested Citation

  • Leticia Castaño & José E. Farinós & Ana M. Ibáñez, 2024. "The stock market reaction to political and economic changes: the Spanish case," Review of Economic Design, Springer;Society for Economic Design, vol. 28(3), pages 593-630, September.
    • Handle: RePEc:spr:reecde:v:28:y:2024:i:3:d:10.1007_s10058-024-00353-1
    DOI: 10.1007/s10058-024-00353-1
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    More about this item

    Keywords

    Politics; Stock market performance; Industry; Firm size;
    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
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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