Electoral information in developed stock market: testing conditional heteroscedasticity in the market model

Abstract

This investigates the influence of major electoral information on abnormal returns around the announcement date in the developed stock market and examines whether these explanatory variables are associated with observed cumulative abnormal returns using a regression analysis. The analytical results demonstrate that average abnormal returns are significantly negative before the date of the announcement of the results of a general election, on days −6 and −3, and after that announcement date, on days +4, +6 and +10. This phenomenon can be attributed to hedging activity of the investors to reduce risk.

Acknowledgment

The authors would like to thank the National Science Council of the Republic of China, Taiwan for financially supporting this research under Contract No. NSC 96-2416-H-264-004.

Notes

¹ The crises related literature has mainly focused on the 1987 stock and currency financial crash, and investigated issues related to the causes of crises, stock returns and volatilities change surrounding the 1987 crash, international stock market linkages, and changes in benefits to international diversification (Roll, 1989; Patel and Sarkar, 1998; Aggarwal et al., 1999; Nieh, 2002).