Parliament Session Effect on the Indian Stock Markets

Abstract

The presence of political risk is a worldwide phenomenon that has affected most national stock markets in the twentieth century. Within this context, it is often said that returns of the stock markets are affected by the Parliamentary happenings. Our study is a first examination of a wide range of questions on the relationship between the Parliament sessions and the stock market. Using past 14 years stock market data, we found that stock index returns are significantly lower and volatility is higher when Parliament is in-session as compared to Parliament in-recess. Put another way, using an "out-of-session" investment strategy by investing in BSE Sensex over the last 14 years would have led to growth in portfolio value by over nine times compared to an "in-session" investment strategy. The study concludes by discussing the influence of coalition governments, coalition politics, and gradual weakening of parliament among important factors driving these results.

Keywords: Parliament Session, Political Risk, India, Congress Session, Stock Markets, Market Efficiency

JEL Classification: P16, P26, O16, G14