Ballot Boxes and Stock Market: The Influence of Parliamentary Election Uncertainty on Dhaka Stock Exchange (DSE) Returns, Volatility, and Trading Volume

Abstract

Political factors, like other external variables, can create noises in the capital market. Elections, being a critical political factor, can instill uncertainty in investors regarding their two primary goals of achieving capital gains and dividends. This study aims to examine the impact of general elections on the Dhaka Stock Exchange's (DSE) return, volatility, and trade volume. The study utilizes daily return data from January 2, 2000, to November 30, 2020, specifically focusing on the four parliamentary elections held in 2001, 2008, 2014, and 2018. By employing the event window approach, the study finds that DSE generates positive abnormal returns during election periods. Additionally, using the GJR-GARCH (p, q) model, the study concludes that return volatility is significantly impacted during election time. Furthermore, the study observes that election has significantly positive impact on daily trade volume of DSE. In conclusion, this study establishes a strong correlation between parliamentary elections and abnormal returns, volatility, and trade volume in the DSE. The study's findings emphasize the need for policymakers to create stable political environments that can attract more investments, boost market confidence, and promote economic growth and development. Investors can use the results to make informed investment decisions during election periods.