PARTIES, ELECTIONS AND STOCK MARKET VOLATILITY: EVIDENCE FROM A SMALL OPEN ECONOMY

Abstract

This paper examines whether movements in the stock prices on the Athens stock exchange can be partly explained by the dynamics of the political environment. On the basis of a partisan structure, with two main political parties and a high density of elections, we find that the conditional mean and variance of the stock market index are affected by political developments in Greece. In particular, we find that different political regimes affect the conditional variance of the stock market index, and also that the stock market index is asymmetrically affected by past innovations.