Presidential Elections and Stock Market: A Comparative Study

Document Type

Article

Publication Date

2020

Abstract

This paper is an event study that aims to find empirical evidence on the significance of the impact of presidential election outcome announcements on stock market return volatility in emerging markets versus developed markets; an application on the Egyptian and the US markets. Design/Methodology/ Approach-A mixed methods approach, combining qualitative data to guide sample selection and quantitative analysis to predominately conduct the empirical test was employed. The study used the mean-adjusted return model on secondary data collected for the EGX100 and S&P500 indices, for a single comparable election from each country. Findings-The empirical results show that presidential elections have no significant impact on stock market volatility in both markets, although the data suggests an increase in abnormal returns and a volatility decrease after each relevant election announcements. It is concluded that both markets efficiently absorb the news and reflect it into stock prices, as no statistically significant shifts in volatility can be detected. Originality/ Value-This study is unique as no existing studies addressed the issue of comparing different markets' behaviour to presidential outcome announcements, and whether markets at different economic development stages may present similar efficiency in reacting to presidential elections. This can provide insight on emerging market behaviour, compared to developed markets, contributing to the comprehension of investors, academics and policymakers.

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