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The price of populism: Financial market outcomes of populist electoral success

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Reference

Stöckl, S., & Rode, M. (2020). The price of populism: Financial market outcomes of populist electoral success. University of Liechtenstein.

Publication type

Working Paper

Abstract

Research on financial markets is only beginning to uncover the importance of public policy for risk assessment and asset prices. Given it’s rejection of institutionalized democratic limits and external constraints, we hypothesize that the electoral success of populist political movements should impact the risk assessment of financial markets. Still, it is a priori unclear whether there are observable differences based on ideological orientation. Employing data from a variety of sources, we show for a sample of Western democracies that the electoral success of more populist parties has a direct impact for price volatility in major domestic market indices (measured from option prices) spanning national election dates. Particularly the political insecurity generated by populist movements on the radical left seems to directly translate into financial insecurity, while the effect of right-wing populism is more ambiguous.

Persons

Organizational Units

  • Chair in Finance