Presidential election uncertainty and market reaction

Detta är en D-uppsats från Handelshögskolan i Stockholm/Institutionen för finansiell ekonomi

Sammanfattning: Uncertainty Information Hypothesis and Efficient Market Hypothesis suggest that asset prices will react to the uncertain US presidential election outcomes, in terms of both overall market level and individual companies/industries. This paper uses the event study framework to test such effect and finds mixed results. In general, the average initial market reaction is negative after election outcomes are known, and such reaction tends to persist until end of the year and even to presidential inauguration day. Moreover, this reaction is significantly correlated with certain election outcomes: the market reacts positively if a Republican candidate wins, and/or if the winner comes from the incumbent party, but reacts negatively if the winner is a re-elected candidate. But there is no significant evidence showing that the 2016 election impacted individual companies on the geographical level: companies located in Republican-supporting states underperformed, but had higher realized cash flow one year later.

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