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The 2000 presidential election and the information cost of sensitive versus non-sensitive S&P 500 stocks

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  • He, Yan
  • Lin, Hai
  • Wu, Chunchi
  • Dufrene, Uric B.

Abstract

We investigate the information cost of stock trading during the 2000 presidential election. We find that the uncertainty of the election induces information asymmetry of politically sensitive firms under the Bush/Gore platforms. The unusual delay in election results creates a significant increase in the adverse selection component of the trading cost of politically sensitive stocks. Cross-sectional variations in bid-ask spreads are significantly and positively related to changes in information cost, controlling for the effects of liquidity cost and stock characteristics. This empirical evidence is robust to different estimation methods.

Suggested Citation

  • He, Yan & Lin, Hai & Wu, Chunchi & Dufrene, Uric B., 2009. "The 2000 presidential election and the information cost of sensitive versus non-sensitive S&P 500 stocks," Journal of Financial Markets, Elsevier, vol. 12(1), pages 54-86, February.
  • Handle: RePEc:eee:finmar:v:12:y:2009:i:1:p:54-86
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    References listed on IDEAS

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    Cited by:

    1. Jamal Bouoiyour & Refk Selmi, 2016. "The Price of Political Uncertainty: Evidence from the 2016 U.S. Presidential Election and the U.S. Stock Markets," Papers 1612.06200, arXiv.org, revised Mar 2017.
    2. Goodell, John W. & Vähämaa, Sami, 2013. "US presidential elections and implied volatility: The role of political uncertainty," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 1108-1117.
    3. Vahabi, Mehrdad, 2006. "Ordres contradictoires et coordination destructive: le malaise iranien
      [Contradictory orders and detructive coordination: the Iranian disease]
      ," MPRA Paper 13235, University Library of Munich, Germany, revised Sep 2008.
    4. Goodell, John W. & McGroarty, Frank & Urquhart, Andrew, 2015. "Political uncertainty and the 2012 US presidential election: A cointegration study of prediction markets, polls and a stand-out expert," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 162-171.

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