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Price jitters: Do markets punish political stocks?

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  • Ghosh, Saibal

Abstract

The paper examines the impact of firms exhibiting political connection on their stock market performance. The results appear to suggest that the performance of ‘political’ stocks has been significantly weak. This is apparent in simple univariate tests that compare the political stocks across various industry categories or even comparisons of political versus apolitical stocks. The regression analysis indicates that the returns on political stocks are on average, over 20% lower as compared to stocks without any political association.

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File URL: http://mpra.ub.uni-muenchen.de/33170/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 33170.

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Date of creation: Jun 2011
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Handle: RePEc:pra:mprapa:33170

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Keywords: political connection; buy-and-hold abnormal returns; India;

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  1. Barber, Brad M. & Lyon, John D., 1997. "Detecting long-run abnormal stock returns: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 43(3), pages 341-372, March.
  2. Shawn A. Cole, 2008. "Fixing Market Failures or Fixing Elections? Agricultural Credit in India," Harvard Business School Working Papers 09-001, Harvard Business School.
  3. Sapienza, Paola, 2004. "The effects of government ownership on bank lending," Journal of Financial Economics, Elsevier, vol. 72(2), pages 357-384, May.
  4. Arulampalam, Wiji & Dasgupta, Sugato & Dhillon, Amrita & Dutta, Bhaskar, 2009. "Electoral goals and center-state transfers: A theoretical model and empirical evidence from India," Journal of Development Economics, Elsevier, vol. 88(1), pages 103-119, January.
  5. Khemani, Stuti, 2004. "Political cycles in a developing economy: effect of elections in the Indian States," Journal of Development Economics, Elsevier, vol. 73(1), pages 125-154, February.
  6. MARA FACCIO & RONALD W. MASULIS & JOHN J. McCONNELL, 2006. "Political Connections and Corporate Bailouts," Journal of Finance, American Finance Association, vol. 61(6), pages 2597-2635, December.
  7. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  8. Gupta, Shreekant & Goldar, Bishwanath, 2005. "Do stock markets penalize environment-unfriendly behaviour? Evidence from India," Ecological Economics, Elsevier, vol. 52(1), pages 81-95, January.
  9. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
  10. Shleifer, Andrei & Vishny, Robert W, 1994. "Politicians and Firms," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 995-1025, November.
  11. Raymond Fisman, 2001. "Estimating the Value of Political Connections," American Economic Review, American Economic Association, vol. 91(4), pages 1095-1102, September.
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