Divided Governments and Futures Prices

Elvira Sojli; WW Tham

doi:10.1016/j.jeconom.2015.02.043

Divided Governments and Futures Prices

Elvira Sojli
, WW Tham

Research output: Contribution to journal › Article › Academic › peer-review

2 Citations (Scopus)

Abstract

This paper investigates the effect of divided governments on asset prices. For identification, we use changes in the implied probability of a divided government while votes are being counted. Using high frequency data from the betting market and US overnight futures market, we estimate a 1.4% decrease in the S&P 500 futures in the election event of a divided government. Results are similar for the 2010 UK election. Further analysis shows that divided government affects expected stock returns through the mechanism of policy uncertainty.

Original language	English
Pages (from-to)	622-633
Number of pages	12
Journal	Journal of Econometrics
Volume	187
Issue number	2
DOIs	https://doi.org/10.1016/j.jeconom.2015.02.043
Publication status	Published - 11 Mar 2015

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10.1016/j.jeconom.2015.02.043

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title = "Divided Governments and Futures Prices",

abstract = "This paper investigates the effect of divided governments on asset prices. For identification, we use changes in the implied probability of a divided government while votes are being counted. Using high frequency data from the betting market and US overnight futures market, we estimate a 1.4\% decrease in the S\&P 500 futures in the election event of a divided government. Results are similar for the 2010 UK election. Further analysis shows that divided government affects expected stock returns through the mechanism of policy uncertainty.",

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AB - This paper investigates the effect of divided governments on asset prices. For identification, we use changes in the implied probability of a divided government while votes are being counted. Using high frequency data from the betting market and US overnight futures market, we estimate a 1.4% decrease in the S&P 500 futures in the election event of a divided government. Results are similar for the 2010 UK election. Further analysis shows that divided government affects expected stock returns through the mechanism of policy uncertainty.

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Divided Governments and Futures Prices

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