Political orientation of government and stock market returns

Prior research documented that U.S. stock prices tend to grow faster during Democratic administrations than during Republican administrations. This letter examines whether stock returns in other countries also depend on the political orientation of the incumbents. An analysis of 24 stock markets and 173 different governments reveals that there are no statistically significant differences in returns between left-wing and right-wing executives. Consequently, international investment strategies based on the political orientation of countries' leadership are likely to be futile.Stock market returns; Politics; Presidential puzzle

Stock market volatiltity around national elections

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.Political risk; National elections; Stock market volatility

Piety and Profits: Stock Market Anomaly during the Muslim Holy Month

Observed by more than 1.5 billion Muslims, Ramadan is one of the most celebrated religious rituals in the world. We investigate stock returns during Ramadan for 14 predominantly Muslim countries over the years 1989-2007. The results show that stock returns during Ramadan are almost nine times higher and less volatile than during the rest of the year. No discernible difference in trading volume is recorded. We find these results consistent with a notion that Ramadan positively affects investor psychology, as it promotes feelings of solidarity and social identity among Muslims world-wide, leading to optimistic beliefs that extend to investment decisions.Ramadan Effect; Behavioral Finance; Market Efficiency; Religion

Political Orientation of Government and Stock Market Returns

Prior research documented that U.S. stock prices tend to grow faster during Democratic administrations than during Republican administrations. This letter examines whether stock returns in other countries also depend on the political orientation of the incumbents. An analysis of 24 stock markets and 173 different governments reveals that there are no statistically significant differences in returns between left-wing and right-wing executives. Consequently, international investment strategies based on the political orientation of countries' leadership are likely to be futile. --Stock market returns,Politics,Presidential puzzle

Stock Market Volatility around National Elections

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. --Political risk,National elections,Stock market volatility

Efficiency of Hedging Against Fluctuating Prices of Dairy Products

This paper investigates hedging and cross-hedging internationally traded milk derivative products with internationally traded commodities, recently launched New Zealand dairy futures, New Zealand agricultural products, and mature United States dairy market futures. The contribution of the paper is twofold. First, we show that international dairy commodities are a distinct commodities subgroup, as changes in prices of dairy products are uncorrelated with other worldwide traded commodities. Second, we show that New Zealand Stock Exchange dairy futures are an effective tool for hedging exposure to smaller size trades and may not necessarily be of large positions as required by cooperatives and multinationals

Does the quality of political signals matter for financial markets? Evidence from return predictability

Investor sentiment and the variance risk premium are well-established learning-based predictors of aggregate stock market returns. This study investigates whether the return predictability of investor sentiment and the variance risk premium is impacted by the quality of political signals. Our analysis shows that low-quality political signals substantially weaken return predictability via a prolonged mispricing correction associated with lower market participation. The explanatory power of predictive regression models is significantly improved when a proxy for the quality of political signals is included. Overall, our robust findings provide evidence that low-quality political signals have a negative impact on the functioning of financial markets

Do investors respond to changes in the composition of sustainability indices?

This paper investigates the price effects associated with changes in the composition of the first sustainability index in Central and Eastern Europe – the RESPECT Index – over its lifetime, i.e. 2009–2019, using an event study technique and the advanced market model for the calculation of abnormal returns. The results show a strong negative reaction by the stock prices of companies that are either included in or excluded from a sustainability index. The effect is short-lived but statistically significant in some asymmetric event windows. The study contributes to the discussion of how the emerging capital markets perceive the value of socially responsible activities undertaken by firms. The research indicates that events such as addition to and removal from a sustainability index (as well as announcements thereof) create a trading opportunity. Additionally, it suggests that investors at the Warsaw Stock Exchange – at least in the short run – tend to sell stocks of companies formally recognised as socially responsible