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Elections and Political Risk: New Evidence from Political Prediction Markets in Taiwan

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Author Info

  • Masami Imai

    ()
    (Department of Economics, Wesleyan University)

  • Cameron A. Shelton

    ()
    (Robert Day School of Economics and Finance, Claremont McKenna College)

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    Abstract

    We examine the effects of party platforms on the economic opportunities of firms using a unique data set from a political prediction market in Taiwan, a country with two dominant parties whose political cleavage derives mainly from a single issue: the “One China Principle”. We find that during the 2008 Presidential campaign, the share price of Taiwanese firms with investments in the mainland responded strongly and positively to a positive electoral outlook for the KMT, the party which advocates lifting caps on cross-strait investment in mainland China. The response is strongest for those firms who have already hit their caps.

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    File URL: http://repec.wesleyan.edu/pdf/mimai/2010001_imai.pdf
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    Bibliographic Info

    Paper provided by Wesleyan University, Department of Economics in its series Wesleyan Economics Working Papers with number 2010-001.

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    Length: 43 pages
    Date of creation: Jan 2010
    Date of revision:
    Handle: RePEc:wes:weswpa:2010-001

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    Keywords: Partisan Effects; Taiwan;

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    References

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    1. Paul Rhode & Koleman Strumpf, 2006. "Manipulating political stock markets: A field experiment and a century of observational data," Natural Field Experiments 00325, The Field Experiments Website.
    2. Allan Drazen, 2001. "The Political Business Cycle After 25 Years," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 75-138 National Bureau of Economic Research, Inc.
    3. Snowberg, Erik & Wolfers, Justin & Zitzewitz, Eric, 2006. "Partisan Impacts on the Economy: Evidence from Prediction Markets and Close Elections," IZA Discussion Papers 1996, Institute for the Study of Labor (IZA).
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    5. Forsythe, Robert & Rietz, Thomas A. & Ross, Thomas W., 1999. "Wishes, expectations and actions: a survey on price formation in election stock markets," Journal of Economic Behavior & Organization, Elsevier, vol. 39(1), pages 83-110, May.
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    7. Roland Füss & Michael Bechtel, 2008. "Partisan politics and stock market performance: The effect of expected government partisanship on stock returns in the 2002 German federal election," Public Choice, Springer, vol. 135(3), pages 131-150, June.
    8. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
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    10. Erik Snowberg & Justin Wolfers & Eric Zitzewitz, 2006. "Party Influence in Congress and the Economy," NBER Working Papers 12751, National Bureau of Economic Research, Inc.
    11. Campos, Nauro F & Giovannoni, Francesco, 2006. "Lobbying, Corruption and Political Influence," IZA Discussion Papers 2313, Institute for the Study of Labor (IZA).
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    14. Witold Jerzy Henisz, 2004. "Political Institutions and Policy Volatility," Economics and Politics, Wiley Blackwell, vol. 16(1), pages 1-27, 03.
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    16. 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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    Cited by:
    1. Yen-Teik Lee & Bang Dang Nguyen & Quoc-Anh Do, 2013. "Political Connections and Firm Value: Evidence from the Regression Discontinuity Design of Close Gubernatorial Elections," Sciences Po publications 15, Sciences Po.

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