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Electoral systems and the effects of political events on the stock market: The Belgian case
Author(s) -
Vuchelen Jef
Publication year - 2003
Publication title -
economics and politics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.822
H-Index - 45
eISSN - 1468-0343
pISSN - 0954-1985
DOI - 10.1111/1468-0343.00116
Subject(s) - ideology , politics , stock market , representation (politics) , stock (firearms) , composition (language) , proportional representation , government (linguistics) , political economy , economics , political science , business , democracy , law , geography , linguistics , philosophy , context (archaeology) , archaeology
Efficient stock markets react to news. News about future economic policies can be derived from political events such as elections, the formation of new governments, changes in the composition of governments, etc. However, the news content of these events depends on the electoral system. In the American electoral system, characterized as it is by majority representation and single–party governments, elections generate news to the extent that the results are unexpected. In countries with proportional representation, governments are frequently multi–party coalitions whose composition is difficult to predict from the election results. These results therefore contain much less information about future policies. Our results, obtained for the Brussels stock market, support this distinction. Furthermore, the ideological composition of the government also matters; these effects support a rational partisan approach.