DP 2021/3 - El-Shagi, M.: Political Uncertainty: A High Frequency Approach

Makram El-Shagi

CFDS Discussion Paper 2021/3


In this paper we assess the impact of election uncertainty on financial markets using the almost unique natural experiment provided by the 2020 US presidential election. Overshadowed by the COVID-19 crisis and the corresponding changes in election law and behavior – especially with respect to mail-in voting – the counting process generated huge swings in the expected election outcome. All those were purely driven by counting, i.e. after the voting process was finished, giving us the rare opportunity to observe truly exogenous swings in election risk. We show that election risk has a negative impact on economic expectations and that expectations in favor of Trump did not correlate with the positive economic implications that the literature has demonstrated for previous Republican candidates.

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