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Stock markets and economic uncertainty: Roles of legislative sessions and coalition strength

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  • Ghalke, Avinash
  • Sensarma, Rudra
  • Chakraborty, Sandip
  • Kakani, Ram Kumar

Abstract

Legislative sessions constitute a critical component of the Westminster Parliamentary system, in a country like India. They play a crucial role in important policy decisions that have ramifications for the corporate sector's cash flows, leading to changes in stock price and volatility. Using data from India, we find that legislative session meetings influence stock price volatility, and the effect is inversely proportional to the strength of the ruling coalition government. These findings advance the theories of intraparty portfolio allocation and partisan trust discrimination in representative democracies based on intraparty and interparty competition in a ruling alliance. Our findings suggest that political competition reflected through government strength in legislative session meetings shapes the mechanism of economic uncertainty, i.e., the foundation of asset price volatility. We draw implications for the conduct of parliamentary business as well as stock investment strategy.

Suggested Citation

  • Ghalke, Avinash & Sensarma, Rudra & Chakraborty, Sandip & Kakani, Ram Kumar, 2023. "Stock markets and economic uncertainty: Roles of legislative sessions and coalition strength," European Journal of Political Economy, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:poleco:v:78:y:2023:i:c:s0176268022001562
    DOI: 10.1016/j.ejpoleco.2022.102353
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    More about this item

    Keywords

    Legislative sessions; Westminster parliament; Economic policy; Asset prices; Political risk; Coalition government;
    All these keywords.

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • N2 - Economic History - - Financial Markets and Institutions
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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