A new study looks at the behaviour of stock markets around the time of political elections.
The study found that on average markets were abnormally strong in the 15 days prior to the election, and abnormally weak in the 15 days after an election.
The trend of abnormal strength ends one day after the election (this day also displays the strongest returns of the whole period); returns then tail off, with the markets being weakest 13 days after the election.
The study analysed data from 13 markets in Europe for the period 1990-2012.
The following chart displays the cumulative average abnormal returns for the 13 markets studied.
But market behaviour was not homogenous across the sample, around the time of elections-
- markets in Belgium Italy, Netherlands, Norway and Sweden were generally weak, whereas
- markets in Finland, France, Greece, Portugal and the UK were generally strong.
Market volatility tended to increase in the 15 days before elections, and then increased further still in the few days afterwards, staying at a high level for rest of the period.
A calendar of political elections coming up this year and beyond.
Opare, Angela, Effects of General Elections on the Return and Volatility of Stocks: The Evidence from Europe (September 15, 2012)