Do political events have an impact on stock indices? Empirical research on emerging countries

ABSTRACT

Using synthetic control methods, we examined the economic effects of political uncertainty. We show that political uncertainty resulting from certain political events is negatively related to major stock indices. Particularly in emerging countries, political turmoil involving the president enormously increases the difficulty of doing business due to increased uncertainty in economic policy. Our results suggest that the beginning of the impeachment process and successful military coup could positively influence the stock market, while a military coup failure and an aircraft accident negatively influence the stock market. Therefore, market investors and business owners in emerging countries must be prepared for significant changes in the progress of a company, industry or sector after the event occurs.

KEYWORDS:

• Political events
• stock market indices
• synthetic control methods
• emerging markets

JEL CLASSIFICATION:

• C32
• F21

Acknowledgement

This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2021S1A5A8067520).

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ For example, these previous studies examined the influence of political uncertainty during the US Presidential election (Li and Born 2006; Jones and Banning 2009; Shon 2010; Goodell and Vähämaa 2013).

² For example, Chang (2022), Benlagha and El Omari (2022), and Ahmad et al. (2022) focus on the relationship between economic policy uncertainty, economic crisis and impact of terrorism recently.