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Electoral uncertainty and financial volatility: Evidence from two‐round presidential races in emerging markets
Economics & Politics ( IF 1.262 ) Pub Date : 2020-06-21 , DOI: 10.1111/ecpo.12163
Daniel Carnahan 1 , Sebastian Saiegh 2
Affiliation  

We study how the predictability and the decisiveness of electoral outcomes affect financial volatility. We argue that traders’ optimal investment strategies depend on their ability to make accurate electoral forecasts and the prospective losses associated with placing a bet on the wrong candidate. Using a triple difference‐in‐difference approach and data from two‐round presidential elections in five Latin American countries between 1999 and 2018, we find that financial volatility is greatest in the days immediately following unpredictable, decisive, elections. Postelectoral volatility also occurs following predictable, indecisive elections. The effect of learning the identity of the winning candidate on financial volatility is null when the election is unpredictable and indecisive, as well as when the election is decisive, but the outcome is predictable. These findings offer insights into investors seeking to hedge price risk around elections. They also have important implications regarding the relationship between public opinion polls and postelectoral financial volatility.

中文翻译:

选举不确定性和金融动荡:新兴市场两轮总统竞选的证据

我们研究选举结果的可预测性和决定性如何影响金融动荡。我们认为交易者的最佳投资策略取决于他们做出准确的选举预测的能力以及与押错候选人有关的预期损失。使用三重差异方法和来自1999年至2018年五个拉丁美洲国家的两轮总统选举的数据,我们发现在不可预测,决定性的选举之后的几天里,金融波动最大。选举后的波动也会在可预测的,犹豫不决的情况下发生选举。学习金融波动获胜的候选人的身份的作用是空的时候选的是不可预知的,瞻前顾后,以及时选的是决定性的,但结果是可以预测的。这些发现为寻求在选举期间对冲价格风险的投资者提供了见识。它们对民意测验与选举后金融动荡之间的关系也具有重要意义。
更新日期:2020-06-21
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