A Systematic Review on Impact of Political Crisis and Election on Capital Market Returns

Abstract

The capital markets worldwide are vastly impacted by market sentiments and investors tend to react and rebalance their portfolios time to time due to such changes in market sentiments from political events. This systematic review examines the impact of political crisis and election on the capital market returns worldwide. It employs a systematic review research method and has gone through 4573 articles, out of which 62 articles published in reputed journals between 1970 and 2023 were considered for review. Of the methodology of the studies reviewed, 43.5% is quantitative, 27.4% is mixed, 17.7% is qualitative, and the rest is conceptual. Researches published in the context of Asian countries contributed 40% of this reviewed study, followed by Europe, Africa, and North America, each with 10%, South America with 3%, Australia with 1%, and allied countries within unions or agreements with 26%. The results show that political crises significantly impact capital market returns in Asia. Studies in North American context indicate that before elections and during political crises, the capital market volatility significantly rises with decreased capital market returns. In Australia, political events cause financial market fluctuation. In Africa, political instability hinders long-term capital accumulation. Additionally, informal political instability in South America directly affects economic growth, while formal instability indirectly affects economic vulnerability. The outcomes of such research hold practical implications for policymakers in formulating portfolio strategies and, therefore, delineate avenues for research exploring the integrated effects of political events on capital market returns by amalgamating trading information from stock exchanges worldwide.