Political and institutional aspects of stock return dynamics [Elektronische Ressource] / submitted by Katrin Gottschalk

Informations

• Publié par: westfalische_wilhelms-universitat_munster
• Publié le: 01 janvier 2007
• Nombre de lectures: 26
• Langue: English

Extrait

Political and Institutional Aspects
of Stock Return Dynamics
A thesis submitted to the
Westf˜alische Wilhelms-University Munster˜
for the degree of Ph.D.
in the Faculty of Economics
Inauguraldissertation
zur Erlangung des akademischen Grades
eines Doktors der Wirtschaftswissenschaften
durch die Wirtschaftswissenschaftliche Fakult˜at
der Westf˜alischen Wilhelms-Universit˜at Munster˜
Submitted by/Vorgelegt von:
Katrin Gottschalk
April 2007Dean/Dekan: Prof. Dr. Wolfgang Berens
First Supervisor/Erstgutachter: Prof. Dr. Martin T. Bohl
Second Supervisor/Zweitgutachter: Prof. Dr. Bernd Wil ing
Defense Date/Tag der mundlic˜ hen Prufung:˜ 18. April 2007Contents
List of Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi
List of Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii
Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 Political Cycles in Stock Market Returns . . . . . . . . . . . . . . . 8
2.1 International Evidence on the Democrat Premium and the Presidential
Cycle Efiect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1.1 Motivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1.2 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.1.3 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.1.4 Empirical Results . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.1.4.1 Democrat Premium . . . . . . . . . . . . . . . . . . . 14
2.1.4.2 Presidential Cycle Efiect . . . . . . . . . . . . . . . . . 15
2.1.4.3 Robustness Checks . . . . . . . . . . . . . . . . . . . . 16
2.1.5 Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . 17
2.1.6 Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.2 Political Orientation of Government and Stock Market Returns. . . . . 26
2.2.1 Motivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.2.2 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.2.3 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.2.4 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.2.4.1 Abnormal Returns around Election Day . . . . . . . . 30
2.2.4.2 Returns during the Term of O–ce . . . . . . . . . . . 31
2.2.5 Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . 32
2.2.6 Figures and Tables . . . . . . . . . . . . . . . . . . . . . . . . . 33
iiiCONTENTS iv
3 Stock Market Volatility around National Elections . . . . . . . . . . 36
3.1 Motivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.2 Predicting Election Outcomes . . . . . . . . . . . . . . . . . . . . . . . 38
3.3 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
3.4 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.5 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
3.5.1 Return Volatility around the Election Date . . . . . . . . . . . . 48
3.5.2 Determinants of Election Surprise . . . . . . . . . . . . . . . . . 49
3.6 Robustness Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
3.7 Implications for Investors . . . . . . . . . . . . . . . . . . . . . . . . . . 52
3.7.1 Compensation for Risk . . . . . . . . . . . . . . . . . . . . . . . 52
3.7.2 Option Pricing and Possible Trading Strategies . . . . . . . . . 54
3.8 Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . 55
3.9 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
3.10 Figures and Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
4 Institutional Investors and Stock Market E–ciency . . . . . . . . . 70
4.1 A Decreasing January Efiect and the Impact of Institutional Investors . 70
4.1.1 Motivation and Literature Review . . . . . . . . . . . . . . . . . 70
4.1.2 Institutional Background . . . . . . . . . . . . . . . . . . . . . . 73
4.1.2.1 Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
4.1.2.2 Hungary . . . . . . . . . . . . . . . . . . . . . . . . . . 75
4.1.3 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
4.1.4 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
4.1.4.1 Groupwise Regressions . . . . . . . . . . . . . . . . . . 78
4.1.4.2 Joint Estimation . . . . . . . . . . . . . . . . . . . . . 80
4.1.5 Empirical Findings . . . . . . . . . . . . . . . . . . . . . . . . . 81
4.1.5.1 Summary Statistics . . . . . . . . . . . . . . . . . . . . 81
4.1.5.2 Regression Results . . . . . . . . . . . . . . . . . . . . 81
4.1.6 Robustness Checks . . . . . . . . . . . . . . . . . . . . . . . . . 84
4.1.6.1 Control Variables . . . . . . . . . . . . . . . . . . . . . 84
4.1.6.2 Rolling Regressions . . . . . . . . . . . . . . . . . . . . 86
4.1.7 Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . 87
4.1.8 Figures and Tables . . . . . . . . . . . . . . . . . . . . . . . . . 89CONTENTS v
4.2 Payment Schemes, Individual Traders’ Investment Decisions, and Stock
Market Anomalies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
4.2.1 Motivation and Literature Review . . . . . . . . . . . . . . . . . 96
4.2.2 Institutional Background . . . . . . . . . . . . . . . . . . . . . . 98
4.2.2.1 Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
4.2.2.2 Hungary . . . . . . . . . . . . . . . . . . . . . . . . . . 98
4.2.3 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
4.2.4 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
4.2.4.1 Data Sources . . . . . . . . . . . . . . . . . . . . . . . 101
4.2.4.2 Summary Statistics . . . . . . . . . . . . . . . . . . . . 102
4.2.5 Empirical Results . . . . . . . . . . . . . . . . . . . . . . . . . . 103
4.2.6 Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . 105
4.2.7 Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Curriculum Vitae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131List of Figures
Figure 2.1: Cumulative Abnormal Returns across Political Camps . . . . . . . 33
Figure 3.1: Cumulative Abnormal Volatility around Election Day . . . . . . . 59
Figure 3.2: Rolling Regression Intercept . . . . . . . . . . . . . . . . . . . . . 60
Figure 3.3: Cumulative Abnormal Return around Election Day . . . . . . . . 61
Figure 3.4: Average Implied Volatility around Election Day . . . . . . . . . . 62
Figure 4.1: Rolling Estimation Results for Poland . . . . . . . . . . . . . . . . 89
Figure 4.2: Rolling Results for Hungary . . . . . . . . . . . . . . . 90
viList of Tables
Table 2.1: Data Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Table 2.2: Summary Statistics of Political Variables . . . . . . . . . . . . . . 19
Table 2.3: Regression Results on the Democrat Premium . . . . . . . . . . . 20
Table 2.4: Results on the Presidential Cycle Efiect . . . . . . . . 23
Table 2.5: Sample Description . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Table 2.6: Political Orientation of Government and Stock Market Returns . . 35
Table 3.1: Data Availability and Sample Composition . . . . . . . . . . . . . 63
Table 3.2: Descriptive Statistics . . . . . . . . . . . . . . . . . . . . . . . . . 64
Table 3.3: Cumulative Abnormal Volatility around Election Day . . . . . . . 65
Table 3.4: Determinants of Excess Volatility . . . . . . . . . . . . . . . . . . 66
Table 3.5: Change in Unconditional Variance . . . . . . . . . . . . . . . . . . 67
Table 3.6: Cumulative Abnormal Returns around Election Day . . . . . . . . 68
Table 3.7: Implied Volatility Indices . . . . . . . . . . . . . . . . . . . . . . . 69
Table 4.1: Stocks Actively Traded by Institutional Investors . . . . . . . . . . 91
Table 4.2: Average Daily Stock Returns . . . . . . . . . . . . . . . . . . . . . 92
Table 4.3: Empirical Results for Poland . . . . . . . . . . . . . . . . . . . . . 93
Table 4.4: Results for Hungary . . . . . . . . . . . . . . . . . . . . 94
Table 4.5: Robustness Check . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Table 4.6: Stocks Actively Traded by Institutional Investors . . . . . . . . . . 106
Table 4.7: Average Turn-of-Month Stock Returns . . . . . . . . . . . . . . . 107
Table 4.8: Average Monday Stock Returns . . . . . . . . . . . . . . . . . . . 108
Table 4.9: Regression Results for the Turn-of-the-Month Efiect . . . . . . . . 110
Table 4.10: Results for the Monday Efiect . . . . . . . . . . . . . . 111
viiAcknowledgements
The writing of a Ph.D. thesis is a challenging venture that factors many inputs. Some
are internal, others are external. I have been fortunate enough to beneflt from the
support of many people without whom the completion of this thesis would not have
been possible. Hence, there are a lot of people I would like to thank for a variety
of reasons|and it should be obvious that this foreword can only re ect the most
substantial in uences on my work.
First