Price of a Surprise: The Effects of Election Outcomes on Stock Market Returns and Volatility

K. Peren Arin; Suzanna Elmassah; Samuel Kaplan; Nicola Spagnolo

doi:10.1515/roe-2022-0039

Price of a Surprise: The Effects of Election Outcomes on Stock Market Returns and Volatility

K. Peren Arin^*, Suzanna Elmassah, Samuel Kaplan, Nicola Spagnolo

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

Abstract

By utilizing a novel data set of 24 democracies for the 1972-2018 period, we investigate how election outcomes, including election surprises, are priced by the stock market. We show that an election surprise increases volatility but has no significant effect on excess returns. A win by a coalition announced prior to the election decreases volatility, however, a large winning percentage for the lead party within the coalition decreases excess returns. An unexpected winning margin over the closest competitor by the lead party decreases volatility by consolidating power, but only in parliamentary elections. Party orientation for the winning party affects neither excess returns nor volatility, even if it is unexpected.

Original language	English
Pages (from-to)	211-221
Number of pages	11
Journal	Review of Economics
Volume	73
Issue number	3
DOIs	https://doi.org/10.1515/roe-2022-0039
Publication status	Published - 1 Nov 2022

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abstract = "By utilizing a novel data set of 24 democracies for the 1972-2018 period, we investigate how election outcomes, including election surprises, are priced by the stock market. We show that an election surprise increases volatility but has no significant effect on excess returns. A win by a coalition announced prior to the election decreases volatility, however, a large winning percentage for the lead party within the coalition decreases excess returns. An unexpected winning margin over the closest competitor by the lead party decreases volatility by consolidating power, but only in parliamentary elections. Party orientation for the winning party affects neither excess returns nor volatility, even if it is unexpected.",

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N2 - By utilizing a novel data set of 24 democracies for the 1972-2018 period, we investigate how election outcomes, including election surprises, are priced by the stock market. We show that an election surprise increases volatility but has no significant effect on excess returns. A win by a coalition announced prior to the election decreases volatility, however, a large winning percentage for the lead party within the coalition decreases excess returns. An unexpected winning margin over the closest competitor by the lead party decreases volatility by consolidating power, but only in parliamentary elections. Party orientation for the winning party affects neither excess returns nor volatility, even if it is unexpected.

AB - By utilizing a novel data set of 24 democracies for the 1972-2018 period, we investigate how election outcomes, including election surprises, are priced by the stock market. We show that an election surprise increases volatility but has no significant effect on excess returns. A win by a coalition announced prior to the election decreases volatility, however, a large winning percentage for the lead party within the coalition decreases excess returns. An unexpected winning margin over the closest competitor by the lead party decreases volatility by consolidating power, but only in parliamentary elections. Party orientation for the winning party affects neither excess returns nor volatility, even if it is unexpected.

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Price of a Surprise: The Effects of Election Outcomes on Stock Market Returns and Volatility

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