Divided Governments and Futures Prices

29 Pages Posted: 12 May 2013 Last revised: 5 Sep 2016

See all articles by Elvira Sojli

Elvira Sojli

UNSW Business School, School of Banking and Finance

Wing Wah Tham

University of New South Wales (UNSW)

Date Written: April 1, 2013

Abstract

This paper investigates the effect of divided governments on asset prices. For identification, we use changes in the implied probability of a divided government while votes are being counted. Using high frequency data from the betting market and U.S. overnight futures market, we estimate a 1.4% decrease in the S&P 500 futures in the election event of a divided government. Results are similar for the 2010 U.K. election. Further analysis shows that divided government affects expected stock returns through the mechanism of policy uncertainty.

Keywords: Divided government, elections, expected returns, policy uncertainty, prediction markets

JEL Classification: D72, E6, G12, G13, G14

Suggested Citation

Sojli, Elvira and Tham, Wing Wah, Divided Governments and Futures Prices (April 1, 2013). Journal of Econometrics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2263853 or http://dx.doi.org/10.2139/ssrn.2263853

Elvira Sojli (Contact Author)

UNSW Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

HOME PAGE: http://sites.google.com/site/esojli/

Wing Wah Tham

University of New South Wales (UNSW)

Kensington
High St
Sydney, NSW 2052
Australia

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