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Daily Judgement: Political News and Financial Markets

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  • Michael Breen
  • Iain McMenamin
  • Michael Courtney
  • Gemma McNulty

Abstract

Political economists disagree about the extent to which markets monitor politics in advanced economies. Some argue that investors are interested in a handful of macroeconomic indicators, while others say that markets also watch political competition closely. We argue that political competition drives variation in the government bond market more than information about economic policy. Using a new automatic classifier, we code the content of millions of newspaper paragraphs about the UK from 1986 to 2012. We then test the impact of news on government debt. We find that political news is correlated with bond prices and that macroeconomic policy news is not. Our results suggest that the market passes daily judgement on politics, not merely cleaving to seldom-released official statistics or focusing on occasional events like elections.

Suggested Citation

  • Michael Breen & Iain McMenamin & Michael Courtney & Gemma McNulty, 2021. "Daily Judgement: Political News and Financial Markets," New Political Economy, Taylor & Francis Journals, vol. 26(4), pages 616-630, July.
    • Handle: RePEc:taf:cnpexx:v:26:y:2021:i:4:p:616-630
    DOI: 10.1080/13563467.2020.1806221
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    Cited by:

    1. Ghalke, Avinash & Sensarma, Rudra & Chakraborty, Sandip & Kakani, Ram Kumar, 2023. "Stock markets and economic uncertainty: Roles of legislative sessions and coalition strength," European Journal of Political Economy, Elsevier, vol. 78(C).
    2. Jan Libich & Liam Lenten, 2022. "Hero or villain? The financial system in the 21st century," Journal of Economic Surveys, Wiley Blackwell, vol. 36(1), pages 3-40, February.

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