Democratic Processes and Financial Markets: Pricing Politics
The authors examine the conditions under which democratic events, including elections, cabinet formations, and government dissolutions, affect asset markets. Where these events have less predictable outcomes, market returns are depressed and volatility increases. In contrast, where market actors can forecast the result, returns do not exhibit any unusual behavior. Further, political expectations condition how markets respond to the political process. When news causes market actors to update their political beliefs, market actors reallocate their portfolios, and overall market behavior changes. To measure political information, Professors Bernhard and Leblang employ sophisticated models of the political process. They draw on a variety of models of market behavior, including the efficient markets hypothesis, capital asset pricing model, and arbitrage pricing theory, to trace the impact of political events on currency, stock, and bond markets. The analysis will appeal to academics, graduate students, and advanced undergraduates across political science, economics, and finance.
What people are saying - Write a review
We haven't found any reviews in the usual places.
Other editions - View all
abnormal returns Arbitrage Pricing Theory asset markets asset owners asset prices Austria bargaining Belgium bond markets cabinet dissolution cabinet end cabinet formation period cabinet negotiations campaign period capital central bank conditional variance currency markets currency traders D-Mark democracies democratic political depreciation distribution dummy variables economic actors economic agents efficient markets hypothesis election European monetary system evaluate exchange rate volatility expectations financial market forecast Gore victory impact increase indicate intention shock interest rates investors issue Italy legislative seats majoritarian market actors market behavior measure null hypothesis O¨VP O¨VPÀFPO p-value parameter estimate partisan partisanship percent periods of potential political events political information political outcomes political processes politicians portfolios positive and significant Posterior potential political change probability residuals risk premium sample specific SPOÀFPO SPOÀO¨VP standard errors statistically significant stock and bond strong party tests U.S. dollar unanticipated voting intention Zealand