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Electoral systems and the effects of political events on the stock market: The Belgian case

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  • Jef Vuchelen

    (Free University Brussels, Belgium)

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    Abstract

    Efficient stock markets react to news. News about future economic policies can be derived from political events such as elections, the formation of new governments, changes in the composition of governments, etc. However, the news content of these events depends on the electoral system. In the American electoral system, characterized as it is by majority representation and single--party governments, elections generate news to the extent that the results are unexpected. In countries with proportional representation, governments are frequently multi--party coalitions whose composition is difficult to predict from the election results. These results therefore contain much less information about future policies. Our results, obtained for the Brussels stock market, support this distinction. Furthermore, the ideological composition of the government also matters; these effects support a rational partisan approach. Copyright 2003 Blackwell Publishing Ltd.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Economics and Politics.

    Volume (Year): 15 (2003)
    Issue (Month): 1 (March)
    Pages: 85-102

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    Handle: RePEc:bla:ecopol:v:15:y:2003:i:1:p:85-102

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0954-1985

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    Cited by:
    1. Pau Castells & Francesc Trillas, 2013. "The effects of surprise political events on quoted firms: the March 2004 election in Spain," SERIEs, Spanish Economic Association, vol. 4(1), pages 83-112, March.
    2. Dopke, Jorg & Pierdzioch, Christian, 2006. "Politics and the stock market: Evidence from Germany," European Journal of Political Economy, Elsevier, vol. 22(4), pages 925-943, December.
    3. Goriaev, Alexei P. & Sonin, Konstantin, 2005. "Is Political Risk Company-Specific? The Market Side of the Yukos Affair," CEPR Discussion Papers 5076, C.E.P.R. Discussion Papers.
    4. K. Arin & Alexander Molchanov & Otto Reich, 2013. "Politics, stock markets, and model uncertainty," Empirical Economics, Springer, vol. 45(1), pages 23-38, August.
    5. Jeetendra Dangol, 2008. "Unanticipated Political Events and Stock Returns: An Event Study," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 20, pages 86-110, April.

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