The stock market reaction to political and economic changes: the Spanish case

Abstract As other European countries, Spain has experienced a turmoil in which new political parties emerged with force after the global financial crisis in 2008. In this context, we analyze whether the empirical implications of the opportunistic and partisan theories, as well as the Uncertain Information Hypothesis, are met in the Spanish stock market, considering the size and the industry of the companies. The horizon of our study takes into account the seven general elections, 24 regional elections and 4 European elections held from 2002 to 2019, period in which Spain is fully integrated in the economic and monetary union and under the macroeconomic imbalance procedure. Our results do not support the opportunistic and partisan theories, or the Uncertain Information Hypothesis. Our evidence suggests that the short-term negative market reaction to the general elections is linked to the uncertainty with a change in the political sign of the incumbent. Besides, it is not related to size or industry characteristics.