Stock Market Volatility around National Election
In a sample of 27 OECD countries, this paper investigates whether the event of a national election induces higher stock market volatility. It is found that the country- specific component of index return variance can easily double during the week around the Election Day, which attests to the fact that investors are surprised by the actual election outcome. Several factors like narrow margin of victory, lack of compulsory voting laws, change in the political orientation of the government, or the failure to form a coalition with a majority of seats in parliament significantly contribute to the magnitude of the election shock. Our findings have important implications for the optimal strategies of risk-averse stock market investors and participants of the option markets.