Effects of General Elections on the Return and Volatility of Stocks: The Evidence from Europe

Abstract

This study is conducted to investigate the behaviour of stock markets in 13 European Countries around Political Elections from 1990-2012. It is found that, during the 15-day period before elections, there are positive market reactions. A general rise in the market reflected in positive abnormal returns is observed. However, a negative reaction is observed in the following 15 days after the release of election outcomes. The subsequent decline in the market is observed to be sharper than the previous rise. In addition, daily returns volatility begins to rise prior to elections and soars a few days to Election Day. Higher-than-normal volatility is observed to be more profound in the days after elections, lasting more than 15 days after Election Day. This hike in volatility, though temporary, is high and significant.

Keywords: Elections, Volatility, Stock Returns, Europe