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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)

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.

Suggested Citation

  • Jef Vuchelen, 2003. "Electoral systems and the effects of political events on the stock market: The Belgian case," Economics and Politics, Wiley Blackwell, vol. 15(1), pages 85-102, March.
  • Handle: RePEc:bla:ecopol:v:15:y:2003:i:1:p:85-102
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    References listed on IDEAS

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    Cited by:

    1. 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.
    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. Julia Darby & Graeme Roy, 2017. "Political uncertainty and stock market volatility: new evidence from the 2014 Scottish Independence Referendum," Working Papers 1706, University of Strathclyde Business School, Department of Economics.
    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. Chang Wen-Chun, 2008. "Toward Independence or Unification?," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 13(2), pages 1-32, January.
    6. 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.
    7. Civilize, Sireethorn & Wongchoti, Udomsak & Young, Martin, 2015. "Military regimes and stock market performance," Emerging Markets Review, Elsevier, vol. 22(C), pages 76-95.
    8. repec:spr:empeco:v:53:y:2017:i:3:d:10.1007_s00181-016-1156-7 is not listed on IDEAS
    9. Pau Castells & Francesc Trillas, 2013. "The effects of surprise political events on quoted firms: the March 2004 election in Spain," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 4(1), pages 83-112, March.

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