Do markets notice economic policymaker changes? An event study

Michal Cvejn

Master's thesis

Abstract:

This paper applies event study analysis on stock and bond market data in 14 European countries between 1990 and 2012 in order to assess market reaction to key economic policymaker changes. The analysis relies on methodological framework is based on article of Kuttner & Posen (2010) and on an original database of political events. The empirical results show that policymaker changes are not reflected in markets as single-day events, rather they are associated with several days of increased volatility following the event. Furthermore, elections are shown to be linked with market volatility on the event day as well as in postevent period.

Abstract:

This paper applies event study analysis on stock and bond market data in 14 European countries between 1990 and 2012 in order to assess market reaction to key economic policymaker changes. The analysis relies on methodological framework is based on article of Kuttner & Posen (2010) and on an original database of political events. The empirical results show that policymaker changes are not reflected in markets as single-day events, rather they are associated with several days of increased volatility following the event. Furthermore, elections are shown to be linked with market volatility on the event day as well as in postevent period.

Keywords

elections, political uncertainty, event study, economic policymaker change

Keywords

elections, political uncertainty, event study, economic policymaker change

Language used: English

Date on which the thesis was submitted / produced: 15. 6. 2012

Thesis defence

• Date of defence: 7. 1. 2013
• Supervisor: Anna Klosová
• Reader: Wim Meeusen

Vysoká škola ekonomická v Praze

Master programme:
Economics of Globalisation and European Integration