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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 country-specific 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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