Parliamentary Elections and the Stock Markets: Evidence from CEE countries

• Název práce v češtině: Vliv parlamentních voleb na akciové trhy v zemích střední a východní Evropy
• Název v anglickém jazyce: Parliamentary Elections and the Stock Markets: Evidence from CEE countries
• Klíčová slova: politika, volby, akciove trhy, vynosy, volatilita
• Klíčová slova anglicky: politics, elections, stock markets, returns, volatility
• Akademický rok vypsání: 2010/2011
• Typ práce: diplomová práce
• Jazyk práce: angličtina
• Ústav: Institut ekonomických studií (23-IES)
• Vedoucí / školitel: Mgr. Radka Štiková, Ph.D.
• Řešitel: skrytý - zadáno vedoucím/školitelem
• Datum přihlášení: 09.06.2011
• Datum zadání: 09.06.2011
• Datum a čas obhajoby: 13.09.2012 00:00
• Místo konání obhajoby: IES
• Datum odevzdání elektronické podoby: 13.07.2012
• Datum proběhlé obhajoby: 13.09.2012
• Oponenti: prof. RNDr. František Turnovec, CSc.

Seznam odborné literatury

1. Bialkowski, J., K. Gottschalk, & T. Wisniewski (2006a): Political orientation of government and stock market returns." MPRA Paper 307, University Library of Munich, Germany.
2. Bialkowski, J., K. Gottschalk, & T. Wisniewski (2006b): Stock market volatility around national elections." MPRA Paper 302, University Library of Munich, Germany.
3. Bohl, M. T. & K. Gottschalk (2006): International evidence on the democrat premium and the presidential cycle effect." The North American Journal of Economics and Finance 17(2): pp. 107-120.
4. Cooley, J. (2009): Stock market returns and partisan political business cycles." Departmental Working Papers 0902, Southern Methodist University, Department of Economics.
5. Döpke, J. & C. Pierdzioch (2004): Politics and the stock market – evidence from Germany." Kiel Working Papers 1203, Kiel Institute for the World Economy.
6. Mukherjee, B. & D. Leblang (2007): Partisan politics, interest rates and the stock market: Evidence from American and British returns in the twentieth century." Economics and Politics 19(2): pp. 135-167.
7. Santa-Clara, P. & R. Valkanov (2003): The presidential puzzle: Political cycles and the stock market." Journal of Finance 58(5): pp. 1841-1872.

Předběžná náplň práce v anglickém jazyce

This thesis will deal with political cycle in countries of Central and Eastern Europe. Traditional political cycle models try to describe the relationship between politics and key macroeconomic indicators or fiscal variables. Here, however, I would like to focus on a not-so-often analyzed relationship of politics and stock markets. Firstly, I will empirically analyze how the stock returns are affected by the timing of elections and the ideology of the government. It is motivated by the fact that right-wing governments are expected to adopt such policies which are more in favor of stock markets. Secondly, a similar analysis will be done also for the volatility of stock market returns, mainly with the aim to find out if elections bring more uncertainty to the stock markets and if traders are prone to be surprised with the election results. Thirdly, I would like to assess the other direction of the relationship, that is, how the stock market situation influences popularity of the government. The reason why I have chosen CEE countries is that the traditional political cycle is often found rather in these “new democracies” and thus it is appealing to test them also for the existence of another type of political cycle. It, however, brings some problems - especially with the short time series of data on stock market returns.

Hypotheses:

1. Stock market returns are systematically higher under right-wing governments.
2. Stock market returns tend to be higher just before elections.
3. Return volatility is higher under left-wing governments.
4. Return volatility increases before elections due to higher uncertainty.
5. Better stock market situation improves government’s popularity.


Methodology:
When testing stock returns hypotheses, the methodology will be close to that of Santa-Clara & Valkanov (2003) mainly in the sense of decomposing stock returns into expected (business cycle driven) and unexpected part where the latter is tested for political effects. However, to at least partially overcome the problem with short time series, I will use panel data methodology similarly to Bohl & Gottschalk (2006) who have used fixed-effects model allowing for country-specific effects. Such a model is reasonable also in the case of CEE countries. When assessing volatility I will perform a GARCH type of analysis inspired by studies of Mukherjee & Leblang (2007) and Bialkowski et al. (2006b) for panel data. GARCH basically allows ascertaining time-varying volatility as a result of politically induced shocks which can be further analyzed relative to the political situation. Only a simple OLS model will then be used when testing the last hypothesis with a possibility to perform a more-detailed analysis using VAR model as in Döpke & Pierdzioch (2004).