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Stock market volatiltity around national elections

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Author Info
Bialkowski, Jedrzej
Gottschalk, Katrin
Wisniewski, Tomasz

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Abstract

This paper investigates a sample of 27 OECD countries to test whether national elections induce higher stock market volatility. It is found that the country-specific component of index return variance can easily double during the week around an Election Day, which shows that investors are surprised by the election outcome. Several factors, such as a narrow margin of victory, lack of compulsory voting laws, change in the political orientation of the government, or the failure to form a coalition with a majority of seats in parliament significantly contribute to the magnitude of the election shock. Our findings have important implications for the optimal strategies of risk-averse stock market investors and participants of the option markets.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 302.

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Date of creation: Jan 2006
Date of revision: Nov 2006
Handle: RePEc:pra:mprapa:302

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Keywords: Political risk National elections Stock market volatility

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Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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  1. Maria Boutchkova & Hitesh Doshi & Art Durnev & Alexander Molchanov, 2007. "Politics and Volatility," CEI Working Paper Series 2008-10, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
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