Page 38 - Ekonomija i Biznis_noemvri 2016.indd
P. 38
finance
Karolina Karovska Bozinoska
The author is an economist
THE INFLUENCE OF
THE PRESIDENTIAL
ELECTIONS ON THE
CAPITAL MARKET
On the threshold of the ter- structure of the investors, as well as the
mination of the presiden- general market sentiment. Therefrom,
tial elections in America the performance of the financial market
and the battle between the to a great extent is significantly affected
Democrats and the Repub- by the political environment during the
licans, the influence and the relationship political cycles, that is, elections.
between the election years and the be-
havior of the capital market are largely Political risk is one of the main factors,
analyzed. Every four years, the relation- which affects the functioning of the capi-
ship between politics and finance is deter- tal market within a country. The forms of
mined, while the investors try to predict influence and direct action can be differ-
how the presidential race will reflect on ent and they can be manifested by adopt-
their portfolios. If theory and practice ing a new legal framework or complete
are analyzed throughout the years, they change of the regime in a country. On
indicate that the political cycles are in- the other hand, as it is known, the perfor-
deed correlated with the behavior of the mances of the capital market in an econo-
capital market and the movement of the my affect all interested parties such as the
prices of shares. The text below summa- investors, the related markets, as well as
rizes and displays part of the theoretical the country itself (Mendelson, 1976).
conclusions and the statistical data which
confirm this relationship. The relationship between the political
processes and the behavior of the wider
The representatives of several differ- investment public, as well as the abnor-
ent theories who are engaged in the study mal returns which arise during these
of this issue, agree that theoretically, in cycles has been the subject of study in dif-
addition to the general economic perfor- ferent countries and in different contexts.
mances, the functioning of the capital Therefore, there is a consensus in the spe-
market is also influenced by the political cific researches that the political indepen-
factor as one of the main general factors. dence which emerges during election pro-
Apart from the general factors, other fac- cesses generates economic independence,
tors which effectuate the market perfor- which on the other hand, contributes for
mances, include the availability of alter- the increase of the aversion to risk, and
native investment funds, change of the therefore the required rate of return of
the investors increases. Taking this into
38 November 2016
