Better the devil you know: The Influence of Political Incumbency on Australian Financial Market Uncertainty
The Australian federal election cycle, which occurs approximately every 3 years, causes much media attention and invokes indecision regarding investment decisions in both the real economy and financial markets. This paper constructs measures of political uncertainty and formally explores their relat...
| Main Author: | |
|---|---|
| Format: | Journal Article |
| Published: |
J A I Press Inc.
2015
|
| Subjects: | |
| Online Access: | http://hdl.handle.net/20.500.11937/9233 |
| _version_ | 1848745890592849920 |
|---|---|
| author | Smales, Lee |
| author_facet | Smales, Lee |
| author_sort | Smales, Lee |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | The Australian federal election cycle, which occurs approximately every 3 years, causes much media attention and invokes indecision regarding investment decisions in both the real economy and financial markets. This paper constructs measures of political uncertainty and formally explores their relationship with market uncertainty, as measured by implied volatility. The empirical evidence suggests that increasing (decreasing) levels of uncertainty around the election result induce higher (lower) levels of market uncertainty. In a case of the market preferring the devil it knows, an increasing (decreasing) likelihood of the incumbent party, whose economic policies are well-known, winning the election, reduces market uncertainty. The results remain significant even after con-trolling for a number of macroeconomic variables, and when an alternative GARCH framework is considered. |
| first_indexed | 2025-11-14T06:24:33Z |
| format | Journal Article |
| id | curtin-20.500.11937-9233 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T06:24:33Z |
| publishDate | 2015 |
| publisher | J A I Press Inc. |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-92332019-02-19T04:25:52Z Better the devil you know: The Influence of Political Incumbency on Australian Financial Market Uncertainty Smales, Lee Exchange traded options Financial market uncertainty Investor sentiment Political uncertainty Implied volatility Stock markets The Australian federal election cycle, which occurs approximately every 3 years, causes much media attention and invokes indecision regarding investment decisions in both the real economy and financial markets. This paper constructs measures of political uncertainty and formally explores their relationship with market uncertainty, as measured by implied volatility. The empirical evidence suggests that increasing (decreasing) levels of uncertainty around the election result induce higher (lower) levels of market uncertainty. In a case of the market preferring the devil it knows, an increasing (decreasing) likelihood of the incumbent party, whose economic policies are well-known, winning the election, reduces market uncertainty. The results remain significant even after con-trolling for a number of macroeconomic variables, and when an alternative GARCH framework is considered. 2015 Journal Article http://hdl.handle.net/20.500.11937/9233 10.1016/j.ribaf.2014.06.002 J A I Press Inc. fulltext |
| spellingShingle | Exchange traded options Financial market uncertainty Investor sentiment Political uncertainty Implied volatility Stock markets Smales, Lee Better the devil you know: The Influence of Political Incumbency on Australian Financial Market Uncertainty |
| title | Better the devil you know: The Influence of Political Incumbency on Australian Financial Market Uncertainty |
| title_full | Better the devil you know: The Influence of Political Incumbency on Australian Financial Market Uncertainty |
| title_fullStr | Better the devil you know: The Influence of Political Incumbency on Australian Financial Market Uncertainty |
| title_full_unstemmed | Better the devil you know: The Influence of Political Incumbency on Australian Financial Market Uncertainty |
| title_short | Better the devil you know: The Influence of Political Incumbency on Australian Financial Market Uncertainty |
| title_sort | better the devil you know: the influence of political incumbency on australian financial market uncertainty |
| topic | Exchange traded options Financial market uncertainty Investor sentiment Political uncertainty Implied volatility Stock markets |
| url | http://hdl.handle.net/20.500.11937/9233 |