The effect of U.S. Presidential elections on stock market liquidity in emerging economies

Abstract

This paper examines the effect of uncertainties that arises from U.S. presidential elections on emerging stock market liquidity over five period of elections from 2000 to 2016. The U.S. presidential elections created two uncertainties, which are political uncertainty and election uncertainty, before the election day. It is argued that the political uncertainty affects the emerging stock market liquidity through the change in future macroeconomic fundamentals while the election uncertainty is an uncertainty about the eventual winner of the election that affects the emerging stock market liquidity through market sentiment. Using monthly Iowa Electronic Markets data, this paper finds the evidence that the political uncertainty has a statistically impact on emerging stock market liquidity while this paper does not find the evidence for the impact of the election uncertainty. The effect of the political uncertainty still has statistically impact on the emerging stock market liquidity even I control the potential effect of macroeconomic variable to the political uncertainty. The result also implies the importance of seperating the two uncertainties during election period into the political uncertainty and the election uncertainty.