Partisan Politics and Stock Market Performance: The Effect of Expected Government Partisanship on Stock Returns in the 2002 German Federal Election
Michael M. Bechtel, Roland Füss
Public Choice, 2008
Abstract
Rational partisan theory suggests that firms perform better under right- than left-leaning governments. In the pre-election time, investors should anticipate these effects of government partisanship. This is the first study to investigate such anticipated partisan effects in Germany. Applying conditional volatility models we analyze the impact of expected government partisanship on stock market performance in the 2002 German federal election. Our results show that small-firm stock returns were positively (negatively) linked to the probability of a right- (left-) leaning coalition winning the election. Moreover, we find that volatility increased as the electoral prospects of right-leaning parties improved, while greater electoral uncertainty had a volatility-reducing effect.
Key Finding
Small-firm returns were positively linked to right-coalition prospects; volatility increased with better right-leaning party prospects.
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Michael M. Bechtel, Roland Füss (2008). Partisan Politics and Stock Market Performance: The Effect of Expected Government Partisanship on Stock Returns in the 2002 German Federal Election. Public Choice. https://doi.org/10.1007/s11127-007-9250-1