Political dynamics play a crucial role in shaping a nation’s economic policies. Changes in the composition of ruling political parties can lead to shifts in existing economic strategies. The political instability that emerged after Malaysia’s 14th General Election represents a unique phenomenon in the national context. This study aims to examine the relationship between political events and stock market returns in Malaysia using the event study methodology. The selected event is the 2021 Emergency Proclamation, which occurred on January 12, 2021. The entire study window spanned around 646 days, covering the pre-event (227 days), event day, and post-event (418 days) periods. This study adopted the market model developed by Fama (1969) to analyse the Average Abnormal Returns (AAR) and Cumulative Average Abnormal Returns (CAAR). The findings revealed that Malaysia’s stock market is resilient, with volatility levels remaining within the normal range of 0.3% to -0.3%. During this period of uncertainty, investors were observed to react to political events, particularly those involving the incumbent party, in pursuit of abnormal returns. These results affirm that political information significantly influences investment decisions in Malaysia’s stock market.
Muhammad et al. (Wed,) studied this question.