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Share prices under Tory and Labour governments in the UK since 1945

Author

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  • Robert Hudson
  • Kevin Keasey
  • Mike Dempsey

Abstract

Given the recent political landscape of the UK with the Labour Party forming a government for the first time since 1979, it is hardly surprising that the performance of the stock market under Tory and Labour governments is a topic of media and general interest. The primary purpose of this paper is to analyse the movement of the UK stock market over the post-war period against the background of different political parties being in power. The evidence presented concerning short-term share price movements indicates that the stock market responds both to the findings of opinion polls in the run up to elections and to elections themselves. Furthermore, the results from elections (inclusive of 'surprise' elections) indicate that there is a clear preference for a Tory government. In terms of share price movements across the period of a government's office, however, there is no statistically significant evidence (at commonly accepted confidence levels) to suggest that the stock market has performed better in either nominal or real terms under Tory government. In addition, via a simple comparison of share prices for the first and second halves of political terms of office, there is no evidence that either party is able to manipulate the economy and/or the market for election purposes. Given that longer-term share price movements do not support the short-term share price movements around elections, a number of key economic variables are examined. These indicate that Tory governments are not associated with superior performance in either real increases in GDP or company profits but that they have seen statistically significant lower levels of average inflation and higher average levels of real interest rates. As for share prices the paper considers whether the economic variables differ between the first and second halves of political terms of office; the results do not provide support for the management of economic variables for election purposes. Such a conclusion is supported by a more detailed analysis of GDP across political terms of office.

Suggested Citation

  • Robert Hudson & Kevin Keasey & Mike Dempsey, 1998. "Share prices under Tory and Labour governments in the UK since 1945," Applied Financial Economics, Taylor & Francis Journals, vol. 8(4), pages 389-400.
    • Handle: RePEc:taf:apfiec:v:8:y:1998:i:4:p:389-400
    DOI: 10.1080/096031098332925
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    References listed on IDEAS

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    Cited by:

    1. Andrew C. Worthington, 2009. "Political Cycles in the Australian Stock Market since Federation," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 42(4), pages 397-409, December.
    2. Yaser Abolghasemi & Stanko Dimitrov, 2021. "Determining the causality between U.S. presidential prediction markets and global financial markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4534-4556, July.
    3. Wisniewski, Tomasz Piotr, 2016. "Is there a link between politics and stock returns? A literature survey," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 15-23.
    4. Civilize, Sireethorn & Wongchoti, Udomsak & Young, Martin, 2015. "Military regimes and stock market performance," Emerging Markets Review, Elsevier, vol. 22(C), pages 76-95.
    5. Hudson, Robert & Urquhart, Andrew, 2015. "War and stock markets: The effect of World War Two on the British stock market," International Review of Financial Analysis, Elsevier, vol. 40(C), pages 166-177.
    6. 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.
    7. Sedef Sen & Murat Donduran, 2017. "Does stock market performance affect the government satisfaction rating in the UK?," Empirical Economics, Springer, vol. 53(3), pages 999-1009, November.
    8. Anderson, Hamish D. & Malone, Christopher B. & Marshall, Ben R., 2008. "Investment returns under right- and left-wing governments in Australasia," Pacific-Basin Finance Journal, Elsevier, vol. 16(3), pages 252-267, June.

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