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Stock market volatility around national elections

  • Bialkowski, Jedrzej
  • Gottschalk, Katrin
  • Wisniewski, Tomasz Piotr

This paper investigates a sample of 27 OECD countries to test whether national elections induce higher stock market volatility. It is found that the countryspecific 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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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 32 (2008)
Issue (Month): 9 (September)
Pages: 1941-1953

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Handle: RePEc:eee:jbfina:v:32:y:2008:i:9:p:1941-1953
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