Democratic Processes and Financial Markets

Democratic Processes and Financial Markets
Cambridge University Press
978-0-521-86122-9 - Democratic Processes and Financial Markets: Pricing Politics - by William Bernhard and David Leblang
Index

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Index

abnormal returns 7, 10, 42, 50, 65–8, 72–9, 230, 234

average abnormal return 50, 65, 66, 73–6, 78

cumulative abnormal return 74

event study model 73

market model 65, 66, 74

median abnormal return 50, 65–8, 72

arbitrage pricing theory (APT) 4, 12, 50, 62, 86, 91, 92, 131, 226

asset specific return 61, 62, 64, 92

factors 3, 62, 64, 65, 74, 91–3, 197, 198

risk exposure 4, 62

asset allocation 1, 10

asset markets 1, 2, 6, 49, 60, 61, 88, 91, 93, 94, 144, 197, 227, 230, 235

asset prices 1, 2, 7–9, 11, 62, 159, 170, 171, 180, 189, 234, 235

asset price volatility 180, 182, 186

mixture of distributions hypothesis 182, 183

non-normality 181

volatility clustering 180–3

augmented Dickey–Fuller test 206

average abnormal returns 50, 65, 73–6, 78

Austria 14, 54, 58, 64, 67, 68, 90, 93, 95, 110, 121, 122, 126, 138, 139, 141, 146–8, 150, 152, 153, 158–60, 162, 165, 166, 168, 197, 229

coalition bargaining 13, 14, 36, 50, 53, 145, 153, 154

content analysis 14, 54, 146, 148

der Standard 146

elections 95, 139

Freedom party (FPO) 14, 55, 139

party system 55, 56, 106, 108, 109, 141, 142, 213

People’s Party (OVP) 14, 55, 139

Socialist Party (SPO) 55

autoregressive conditional heteroskedasticity (ARCH) 180

asymmetric component 187, 191, 193

ARCH term 186, 187, 193, 211, 217, 218

conditional volatility 26, 187, 195, 219–21

EGARCH 187, 190, 193–5

EGARCH-in-mean 190, 194

fat-tailed distributions 180

GARCH 26, 182, 184–91, 193–6, 210, 211, 216–18

mixture of distributions hypothesis 182, 183

non-normality 181

volatility clustering 180–3

Bayesian updating 169

behavioral finance 7, 60, 226, 232

bonds 1, 3, 4, 9, 18, 49, 60, 63–5, 68, 72, 77–80, 84, 89, 93, 101, 116–22, 125, 128, 129, 136, 138, 151, 152, 155, 157, 225, 233, 234

benchmark 12, 50, 116, 117, 119, 120, 154

Britain 15, 30, 36, 40, 43, 46, 110, 114, 121, 122, 131, 135, 198, 200, 202–5, 207, 208

Blair, Tony 205, 221, 222

Conservative Party 41, 202, 205, 208, 212

economy 3, 9, 41, 54, 61, 63, 88, 91, 102, 104, 118, 139, 142, 203, 205, 223, 234

elections 29, 40, 41

EMS, participation in 100

ERM crisis 131, 133, 135

exchange rate 13, 15, 17–20, 22, 25, 35, 36, 42, 208, 209, 211, 221

government vote intention 199, 206–8, 210, 212, 214, 216, 218, 219, 221, 223

Labour Party 41, 56, 142, 143, 145, 205, 207, 221

Major, John 200, 204

Thatcher, Margaret 41, 202, 204

party system 55, 56, 106, 108, 109, 141, 142, 213

petrol crisis 212, 219, 221, 222

cabinet formation 1, 10, 11, 13, 14, 42, 49, 50, 54, 57, 65, 67, 72–9, 81, 83–5, 93, 102, 108, 111, 139, 146, 163, 223

Austria 14, 54, 58, 64, 67, 68, 90, 93, 95, 110, 121, 122, 126, 138, 139, 141, 146–8, 150, 152, 153, 158–60, 162, 165, 166, 168, 197, 229

coalition formation 49, 50, 57, 66, 67, 72, 74, 75, 83, 138, 150, 153, 159, 197, 230

Laver–Shepsle model 13, 50, 51–4, 65, 106, 144

equilibrium cabinet 52

post-election negotiations 22, 23, 25, 28, 36, 38, 42

strong party 13, 52–4, 57–9, 65, 74–8, 80, 81, 83–5, 89, 94, 97, 99–102, 139,144

winset program 53, 54, 57, 139, 144

cabinet dissolutions 10, 12, 21, 22, 25, 29, 30, 36–9, 42, 46, 103, 104, 115, 136

constitutionally-mandated election period 108

ends 105, 107, 111, 113–16, 130, 131, 136

expectations of 10, 26, 60, 65, 103, 104, 107, 116, 117, 130, 137, 138, 162, 188–90, 195, 200, 223, 226

government type 108, 109, 111, 114, 115, 117

models 10, 12, 26, 31, 42, 49, 104

impact 4, 5, 10, 12–14, 16, 50, 64–6, 81, 82, 84, 87–9, 91–7, 99–104, 117, 125, 129, 131–3, 135, 136, 138, 139, 159, 160, 162, 186, 188, 195, 197, 198, 202, 217, 219–21, 223, 227, 230, 231, 233

bond issues 60, 116, 119, 121–2, 125, 129

onshore–offshore spreads 134

predicted probability 107, 115, 116, 125

cabinet durability 14, 105, 108, 109

event history model 110

discrete time hazard model 111, 112, 114

campaign period 28, 29, 32, 35, 36, 38, 67–77, 81, 82, 93

Campbell–Schiller approach 155, 156

capital asset pricing model (CAPM) 12, 26, 61

mean-variance approach 60, 61

capital controls 11, 91, 130, 132, 133

capital account liberalization 118, 119, 126, 132, 134

central bank independence 94, 99–101, 229, 230

coalition formation 49, 50, 57, 66, 67, 72, 74, 75, 83, 138, 150, 153, 159, 197, 230; see cabinet formation

comovement 63, 87

content analysis 14, 54, 146, 148

Austria 14, 54, 58, 64, 67, 68, 90, 93, 95, 110, 121, 122, 126, 138, 139, 141, 146–8, 150, 152, 153, 15–60, 162, 165, 166, 168, 197, 229

coding rules 16–6

kappa coefficient 146

market beliefs 14, 136, 138, 153, 156, 157, 161, 169, 171, 232

net likely mentions 146, 147–51, 156, 157, 160, 169

New Zealand 14, 54, 59, 64, 71, 90, 93, 94, 110, 121, 131, 138, 139, 142, 143, 145, 146, 148, 149, 151, 152–4, 160–2, 197, 229, 230

cross-border political shocks 86–9, 100–2

cumulative abnormal returns 74

currency markets 41, 42, 49, 189, 199, 202, 203, 205, 207–10, 219, 221

democracy 2, 17, 54, 55, 227, 231–5

institutional reform 3, 13, 16, 102, 228–30, 235

processes 1, 2, 5, 8, 9, 11, 13, 14, 17, 18, 20, 21, 22, 24, 26, 28, 30, 32, 33–8, 40, 42, 44, 46, 48,57, 66, 81, 84, 85, 104, 105, 107, 137, 138, 171, 185, 197, 223, 226, 231–5

political periods 32–40, 65–7, 74, 81–3, 93–6, 100

quality 2, 54, 231, 234

Dutch party system 3, 55, 56; see Netherlands party system

efficient markets hypothesis (EMH) 7, 12, 18, 182

EGARCH 187, 190, 193–5

EGARCH-in-mean 190, 194

elections 1, 5, 8, 11, 12, 14, 20, 21–3, 25, 29, 30, 31, 33–6, 38–43, 49, 73, 77, 84, 94, 95, 100, 102, 104–9, 117, 138, 139, 141, 142, 165, 167, 170, 171, 182, 199, 200, 207, 216, 220, 221

political sub-periods 33, 34, 38, 40

electoral clock 108, 109, 111, 112–14, 226

electoral reform 16, 230

electoral college 15, 170–2, 175, 176, 193, 195

EMU 104, 120, 205

entropy 179, 189, 192, 194–6

ERM Crisis 131, 133, 135

European Monetary System (EMS) 25, 204

event study 73, 74

exchange rates 13, 15, 17–20, 22, 25, 35, 36, 42, 208, 209, 211, 221

conditional volatility 26, 187, 195, 219–221

distributional consequences 1, 202, 203, 224, 234

forward 4, 12, 17–22, 26–8, 30, 31, 37–9, 42, 55, 65, 148, 212, 225

spot 4, 7, 12, 17–20, 26, 27, 30, 37, 42, 60, 179, 183, 205, 209, 225

random-walk 209

risk 1, 3, 4, 17–22, 24–40, 42, 44, 46, 48, 50, 60–3, 75, 82, 87, 92, 119–21, 124, 126, 130, 155, 188, 231

Pound–Dollar exchange rate 206, 210

US Dollar–Japanese Yen exchange rate 15, 171, 177, 179, 180, 189, 195

volatility 1, 3, 5, 6, 9, 10, 15, 16, 20, 25, 26, 28, 30, 42, 170–2, 179–89,193–5, 197–202, 205, 209–11, 213–15, 217–23, 225, 228, 234

exchange rate commitments 13, 16, 25, 28, 42, 90, 100, 133

EMS 17, 25, 26, 32–7, 39, 40, 83, 84, 90, 94, 97, 99, 100, 120, 124, 132–4, 202, 204, 210, 211, 217, 228

EMU 104, 120, 205

fixed 4, 13, 18, 25, 90, 99, 100, 121, 124, 132–4, 229

snake 26

exogenous electoral timing 105, 108, 109, 111, 113, 114

expectations theory 154–6, 227

exponential GARCH (EGARCH) 187

factor models 62

factor loading 62

risk exposure 4, 62

single factor model 62

Fama and MacBeth 91, 96, 97

fiscal policy 2, 14, 103–6, 137

costs of borrowing 2, 3, 14, 103, 104, 228

flexibility 2, 14

issuing debt 117

forward exchange rate 12, 17–20, 30, 37, 42

bias 10, 12, 17–20, 22, 28, 31, 37–9, 42, 63, 81, 87, 93, 98, 116, 119, 121, 130, 182, 200, 208, 233

fractionalization 109, 111, 113, 114

futures 14, 18, 171, 177–9, 182, 190, 193–5, 225

NASDAQ 100 index 15, 171, 177

S&P Index 193

generalized autoregressive conditional heteroskedasticity (GARCH) 26, 182, 184–91, 193–6, 210, 211, 216–18

EGARCH 187, 190, 193–5

IGARCH 194

Germany 30, 36, 44, 46, 54, 58, 64, 69, 93–5, 110, 121, 122, 131, 185, 229

monetary policy 89, 90, 120, 131, 154, 204, 230

political periods 33–9, 66, 67, 74, 81–3, 93–6, 100

stock returns 13, 50, 67, 77, 81, 82, 89, 90, 100, 101, 181, 187

government debt 103, 107, 121, 130, 137, 139, 153

short-term interest rates 153–5, 157

government popularity 15, 198, 199, 203, 206–9, 217

Britain 15, 30, 36, 40, 110, 114, 121, 122, 131, 135, 198, 200, 202–8, 210, 212, 214, 216, 218, 220, 222, 224

opinion poll 15, 22, 85, 141, 199–203, 205–7, 212, 221, 235

polling houses 207, 208, 212

vote intention 199, 206–8, 210, 212, 214, 216, 219, 221, 223

Granger causality 159, 160, 162

home-bias 63, 130, 233

initial public offering (IPO) 116

insider trading 7

integrated GARCH (IGARCH) 194

interest rates 14, 15, 77, 89, 101–5, 107, 115, 116, 119, 130, 132, 133, 136, 137, 151–7, 159, 160, 162, 171, 177, 197, 197, 202, 204

launch spread 117, 121, 124, 125, 129

onshore/offshore 130

term structure 154, 155, 234

investment portfolios 3

asset market volatility 198

risk-return 57–60

Jarque–Bera test 77, 78, 216, 217

Kalman filter 207

kurtosis 182, 186, 210

Laver and Shepsle 10, 13, 50–4, 65, 106, 144

majoritarian system 5, 23, 36, 75–7, 203

Maastricht Treaty 120, 204, 229; see EMU

median abnormal returns 66, 67, 72

mixture of distributions hypothesis 182, 183

NASDAQ 100 index futures 15, 171, 177

Netherlands party system 3, 55, 56

Christian Democrats (CDA) 41, 56 ,143, 144

Democracy '66 (D'66) 56, 57

Liberal (VVD) 56, 57

Labour (PvdA) 56, 57

Newey–West standard errors 31

New Zealand 14, 54, 59, 64, 71, 90, 93, 95, 110, 121, 123, 128, 131, 138, 139, 142, 143, 145, 146, 148, 149, 151, 152–4, 159–62, 197, 229, 230

coalition bargaining 13, 14, 36, 50, 53, 145

content analysis 14, 54, 146, 148

Dominion Post 146

electoral reform 16, 230

government debt 103, 107, 121, 130, 137, 139, 153

Labour Party 41, 56, 142, 145, 148, 151, 152, 161, 162, 202, 204, 205, 207, 208, 216, 221–223, 234

National Party 14, 55, 86, 88, 90, 92, 94, 96, 98, 100, 102, 109, 118, 142–5, 148, 151–3, 160–2, 213

NZ First 143–5, 148, 151–3, 160, 161

onshore/offshore spread 130

opinion polls 15, 85, 200–3, 205, 207, 212, 221, 235

Kalman filter 207

overlapping contract 31

overnight trading 171, 182

parliamentary politics 49, 104

campaigns 6, 22, 42, 49, 73, 82, 171

cabinet dissolutions 10, 12, 21, 22, 25, 29, 30, 36–9, 42, 104, 116, 136

cabinet formations 1, 11, 13, 14, 49, 54, 65, 78, 84, 102, 223

coalition bargaining 13, 14, 36, 50, 53, 145

electoral timing 77, 105, 108, 109, 111, 113, 114, 200, 226

partisanship 23, 89, 97, 118, 128

measure of left government strength 24

party manifesto project 54

economic dimension 54, 55

party system maps 55

policy space 50, 51, 232

social dimension 54, 55

peso problem 20

Phillips–Perron test 205, 206, 208

polarization 109

political processes 1, 9

sub-periods 28, 30, 32, 35, 38

polls; see opinion polls

portfolio allocation 1, 78, 87, 234

diversification 87

presidential election (2000) 14, 29, 163, 170–2, 179, 188, 197

U.S. Dollar–Japanese Yen exchange rate 15, 171, 177, 179, 180, 189, 195

electoral college 15, 170–2, 175, 176, 193, 195

Gore victory 15, 172, 176, 189, 190, 193–5, 197

NASDAQ 100 index futures 15, 171, 177

S&P 500 index futures 15, 61, 171, 177

state-level polls 172

updating probability of Gore victory 15, 176, 189, 190, 193–5

proportional representation system 36, 75, 76, 142

public debt issue 103, 188

launch-spread model 117, 121, 124, 125, 129

public opinions shocks 15, 198, 200, 209, 213, 214, 216, 220

quartile regression 98

random walk 7, 8, 194, 199, 209

risk 1, 3, 4, 7, 8, 13, 17–22, 24–30, 32–7, 39, 40, 42, 50, 60–3, 75, 82, 87, 92, 119–21, 124, 126, 130, 155, 188, 231

mean-variance approach 60, 61

portfolio theory 60

risk premium 17, 20–2, 24–30, 32–7, 39, 40, 42

forward exchange rate 12, 17–20, 30, 37, 42

EGARCH-in-mean 194

robust regression 77, 78, 84, 98–101

S&P 500 Index futures 15, 61, 171, 177

S&P ratings 129

seemingly unrelated regression (SURE) 79

selection model 116, 121, 124–26

stocks 64, 79, 80, 89, 93, 100, 116, 187, 233

futures 14, 18, 171, 177–9, 182, 190, 193–5, 225

GLOBEX trading system 177

NASDAQ 100 15, 171, 177

S&P 500 15, 61, 171, 177–9, 190–2, 195

returns 1, 7, 9, 10, 13, 14, 26, 27, 42, 49, 50, 53, 57, 60, 61, 63–8, 72–84, 87–90, 92, 93, 95, 96, 98–102, 107, 118, 128, 132, 138, 171, 180–2, 184–8, 194, 223, 225, 230, 233, 230, 233, 234

volatility 1, 3, 5, 6, 9, 10, 15, 16, 20, 25, 26, 28, 30, 42, 171, 172, 179, 180, 182–9, 193–5, 197, 198, 200–2, 205, 209–11, 213–15, 217, 219–23, 225, 228, 234

tick data 11, 168, 177, 179

term structure 154, 155, 234

unanticipated exchange rate shocks

appreciation 187, 197, 203, 204, 211, 215, 216, 218

depreciation 187, 188, 198, 200, 201, 203, 211, 215–19, 221–4

U.S. Dollar–Japanese Yen exchange rate (USD–JPY) exchange rate 15, 171, 177, 179, 180, 189, 195

closing prices 152, 157

U.S. Presidential election 14, 163, 179, 197; see presidential election (2000)

vector autoregression 155, 159

volatility 1, 3, 5, 6, 9, 10, 15, 16, 20, 25, 26, 28, 30, 42, 170–2, 179–89, 193–5, 197–202, 205, 209–11, 213–15, 217–23, 225, 228, 234

weighted least squares 77, 98, 99, 101

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