Politics and Liquidity

28 Pages Posted: 18 Nov 2016 Last revised: 29 May 2018

See all articles by Ben R. Marshall

Ben R. Marshall

Massey University - School of Economics and Finance

Harvey Nguyen

Massey University, Massey Business School; Monash University

Nhut (Nick) Hoang Nguyen

Auckland University of Technology

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance

Date Written: November 16, 2016

Abstract

The equity market is more liquid under Democratic than Republican presidencies. This is apparent at the market level but is stronger in small, value stocks and in industries that are more sensitive to Democratic presidents. The effect is robust to different liquidity measures and time periods. It holds after controlling for the business cycle, macroeconomic variables, and the party with House of Representatives and Senate majorities. There is evidence that the liquidity effect is driven by a number of channels. Information asymmetry, volatility, and economic policy uncertainty are all lower during Democratic presidencies.

Keywords: Liquidity, Politics, Information Asymmetry, Economic Policy Uncertainty

JEL Classification: G11, G14

Suggested Citation

Marshall, Ben R. and Nguyen, Harvey and Nguyen, Nhut (Nick) Hoang and Visaltanachoti, Nuttawat, Politics and Liquidity (November 16, 2016). 8th Conference on Financial Markets and Corporate Governance (FMCG) 2017. Available at SSRN: https://ssrn.com/abstract=2870705 or http://dx.doi.org/10.2139/ssrn.2870705

Ben R. Marshall (Contact Author)

Massey University - School of Economics and Finance ( email )

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Harvey Nguyen

Massey University, Massey Business School ( email )

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Auckland, North Shore, Albany 0632
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Monash University ( email )

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Nhut (Nick) Hoang Nguyen

Auckland University of Technology ( email )

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Auckland, Auckland 1010
New Zealand
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Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance ( email )

School of Economics and Finance
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Auckland
New Zealand
64 9 414 0800 (43169) (Phone)
64 9 441 8177 (Fax)

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