Price of a Surprise

Córdoba

Workshop; Workshop Instituto de Economía y Finanzas - Facultad de Ciencias Económicas, UNC; 2021

Instituto de Economía y Finanzas, FCE - UNC

By utilizing a novel data set of 24 democracies for the 1972{2018 period, we investigate how election outcomes, including election surprises, are priced by the stock market. We show that a right-wing win has a statistically significant negative effect on volatility, and has a significant positive effect on abnormal returns, even if it is anticipated. We also document that while an incumbent-win has a positive effect on returns, the opposite is true for a surprise win by a large margin for a right-wing or a coalition government.