Stock Returns, Governments and Market Foresight in France, 1871-2008
David Le Bris
BEM Bordeaux Management School
January 3, 2012
International Conference of the French Finance Association (AFFI), May 2011
This paper analyzes the historical relationship between the political coloration of the government and stock market performance in France between 1871 and 2008. The Left-wing/Right-wing dichotomy, which is ubiquitous in French political discourse, is utilized in order to build a comparative analytical framework. During the 150 months characterized by the appointment of a new government regardless the coloration, we find that the monthly stock return is, on average, three times higher than for other months. The market appreciates in value with all new governments. However, in the long run, the real return of French stocks averages 4.40% per year under Left-wing versus 0.11% under Right-wing governments. This difference, although statistically robust, is not the result of added compensation for higher risk investments, nor is it driven by short special periods. The existence of a more favorable macroeconomic context during the rule of Left-wing governments only explains one third of this difference. A large part of the difference is concentrated during the three months prior to a coloration change. Assuming that the market anticipates coloration changes three months in advance, we move the boundaries: the difference in stock returns becomes insignificant.
Number of Pages in PDF File: 27
Keywords: Political puzzle, political impact, information uncertainty, stock returns, 19th century, 20th century
JEL Classification: G1, G18, H1, N23, N24working papers series
Date posted: May 7, 2011 ; Last revised: September 28, 2012
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