Use this URL to cite or link to this record in EThOS: https://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.745824
Title: Empirical analysis of the link between politics and stock market behaviour
Author: Lei, Xun
ISNI:       0000 0004 7228 0072
Awarding Body: University of Leicester
Current Institution: University of Leicester
Date of Award: 2018
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Abstract:
Political risk factors have become an important source of systematic and non-systematic risk in capital markets. From a micro perspective, policy risk and political connections are widespread in different countries. Therefore, how to effectively manage the political risks has become an increasing concern for researchers and investors. Politics is a broad and complex subject, and financial scholars have studied it from many perspectives. This thesis consists of three empirical studies that focus on three specific political aspects and investigate how these aspects affect stock market performance. The first empirical chapter examines how economic policy uncertainty (EPU) is related to stock market performance in the U.S. I find that an increase in the EPU index negatively affects S&P500 returns and increases its implied volatility. Furthermore, the component of the EPU index that has the strongest explanatory power is that based on newspaper coverage of policy uncertainty, while the other three lack statistical significance. Governments should try to maintain policy stability and sustainability, so that investors can make reasonable predictions about policy changes and arrange their investment planning accordingly. Moreover, investors should also pay attention to expectations of policy change and adjust their portfolios based on policy uncertainty exposure. The second empirical chapter examines the impacts of democracy improvement on stock markets from an international perspective. The empirical results suggest that increases in political rights lead to higher stock returns. Investors might seek investment opportunities in democratic countries’ markets. For policy makers, improving economic institutions is not the only way to attract foreign investment and promote capital market development, reforming the political regime is also worth thinking about. The third empirical chapter conducts a textual analysis on U.S. presidential speeches to examine the influence of political communications on stock market. Presidential speeches reflect the president’s and advisers’ views on the country's future economy, and may also contain new information related to future policy directions. This study employs content analysis techniques and an event study method to analyse the market response to the linguistic characteristics of the presidents’ addresses. The results show a significant and positive association between the level of commonality expressed in a president’s speech and abnormal returns on the DJIA around the speech date. This implies that peaceful speeches are associated with a statistically significant increase in abnormal returns. These findings suggest that as well as analysing the specific content of public political information, its linguistic features and emotional tendencies are also worthy of investors’ attention.
Supervisor: Wisniewski, Tomasz ; Haven, Emmanuel Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID: uk.bl.ethos.745824  DOI: Not available
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