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Do markets punish left governments?

Sattler, Thomas (2013) Do markets punish left governments? Journal of Politics, 75 (2). pp. 343-356. ISSN 0022-3816

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Abstract

The political economy literature finds that stock markets drop after left-wing and increase after right-wing electoral victories. This study shows that the size of this reaction strongly depends on the political constraints that the incoming government faces. When constraints are high, the discretion of governments to implement their preferred policies is low, which implies that election outcomes are less relevant for financial investors. The analysis of an original dataset of stock market reactions to 205 elections since the 1950s confirms this conjecture. Stocks drop considerably after the election of a left government and increase after the election of a right government, but only in low-constraints countries. These partisan effects on stocks are highly persistent and even become stronger over time when additional information about the composition of the incoming government becomes available. However, the effects of elections on stocks fully disappear when political constraints are high.

Item Type: Article
Official URL: http://journals.cambridge.org/action/displayJourna...
Additional Information: © 2013 Southern Political Science Association
Library of Congress subject classification: H Social Sciences > HG Finance
H Social Sciences > HX Socialism. Communism. Anarchism
J Political Science > JA Political science (General)
Journal of Economic Literature Classification System: G - Financial Economics > G1 - General Financial Markets > G10 - General
Sets: Departments > International Relations
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 09 Oct 2012 13:45
URL: http://eprints.lse.ac.uk/45078/

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