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National Elections and Tail Risk: International Evidence

53 Pages Posted: 7 Jul 2015 Last revised: 21 Nov 2017

Qingyuan Li

Wuhan University - School of Economics and Management

Si Li

Wilfrid Laurier University - School of Business & Economics

Li Xu

Washington State University, Vancouver

Date Written: November 18, 2017

Abstract

We investigate stock tail risk around national elections worldwide over the period of 1982-2012. We find that firm stock is less likely to crash during the election years, and is more likely to crash during the post-election period. This inter-temporal pattern is consistent with the suppression of negative information when there is heightened political uncertainty around elections and with the subsequent release of adverse news when the uncertainty is reduced. Further analysis shows that the impact of political uncertainty on tail risk is stronger in countries with poorer investor protection, fewer electoral checks and balances, more uncertain election outcomes and pro-business incumbent governments, in industries which are more politically sensitive, and in firms with larger information asymmetry.

Keywords: Political uncertainty, tail risk, crash risk, national elections, international finance

Suggested Citation

Li, Qingyuan and Li, Si and Xu, Li, National Elections and Tail Risk: International Evidence (November 18, 2017). Available at SSRN: https://ssrn.com/abstract=2627533 or http://dx.doi.org/10.2139/ssrn.2627533

Qingyuan Li

Wuhan University - School of Economics and Management ( email )

Wu Han, Hu-Bai 430072
China

Si Li (Contact Author)

Wilfrid Laurier University - School of Business & Economics ( email )

Waterloo, Ontario N2L 3C5
Canada

Li Xu

Washington State University, Vancouver ( email )

14204 NE Salmon Creek Avenue
Vancouver, WA WA 98686-9600
United States

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