Journal of Banking & Finance Vol. 110 2020
Election uncertainty, economic policy uncertainty and financial market uncertainty: A prediction market analysis
Abstract
We examine the relationship between election uncertainty, economic policy uncertainty, and financial market uncertainty in a prediction-market analysis, covering seven US presidential election campaigns. We argue theoretically that changes in the incumbent party re-election probability should be a key driver of changes in policy uncertainty. Consistent with this theory, we find that a large portion of changes in financial uncertainty in the final stages of election campaign seasons is explained by changes in the probability of the incumbent party getting re-elected. Our findings suggest that the incumbent-party election probability, derived from prediction markets, is an important measure of economic policy uncertainty in the days leading up to US elections.
- DOI
- 10.1016/j.jbankfin.2019.105684
- Volume
- 110
- Pages
- 105684
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib