Electoral uncertainty and its impact on the volatility of the stock market in Mexico
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Abstract
Purpose: We analyze the impact of uncertainty about the winner of the presidential elections in Mexico in the returns and volatility of the Mexican Stock Exchange Index (IPC)
Methodological design: Measures of electoral uncertainty were calculated based on the accumulated normal distribution of electoral preferences, using the results of surveys published by the National Electoral Institute (INE) prior to the presidential elections of 2006, 2012 and 2018 in Mexico and it was collected daily information of the IPC to measure the behavior of the stock market. For data analysis, we used a generalized autoregressive conditional heteroskedasticity (GARCH) model.
Results: The analysis show that an increase in electoral uncertainty increases the volatility of the of the IPC return in a highly competitive election and that the advance in the electoral preferences of the left-wing candidate generates a decrease in the average performance of the index, while that the advancement of the right-wing candidate is related to an increase in performance.
Research limitations: The study includes three electoral periods because the competition with real possibilities of victory between representatives of different political ideologies is recent in the country.
Findings: The behavior of the stock market in Mexico is affected by the presidential electoral cycle, especially the degree of uncertainty about the winner and his political ideology, an important situation to consider when making economic decisions.
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