Parliamentary Elections and Frontier Stock Markets: Evidence from Stock Market Reaction to General Elections in the Commonwealth Caribbean

Abstract

This study is the first to investigate stock price reaction to parliamentary elections in the Commonwealth Caribbean. The study finds that parliamentary elections have a statistically significant effect on stock prices in the Bahamas, Barbados, Jamaica and Trinidad and Tobago, but no effect in the Eastern Caribbean and Guyana. The evidence suggests that equity investors in the Bahamas, Barbados, Jamaica and Trinidad and Tobago have an opinion on the prospects for their investments under different political administrations and these opinions are expressed through the trading of shares around the election cycle. However, the results do not provide support for the notion of an ‘election cycle pattern’, that is, a general increase in stock prices around the election cycle, and except in the case of Jamaica, where the stock market appears to disapprove of the People’s National Party (PNP), the results do not provide support for a ‘political party pattern’, that is, a preference among equity investors for a particular political party across the different countries.

Keywords

Frontier stock markets elections market efficiency developing countries Caribbean thin trading

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