Europe's gone “right” – A comparative study of stock market reactions to populist success in Sweden and Italy

Abstract

We analyze the reactions of national equity markets to the election of far-right populist governments in Italy and Sweden in September 2022. We apply event study methodology to samples of 285 Swedish and 144 Italian stocks. Share prices of Italian stocks largely aligned in the week before the vote. Conversely, the Swedish electoral outcome hit markets by surprise. Share prices adjusted in the days following the vote. We use firm-level increases in intraday volatility before the vote to estimate sensitivities to electoral outcomes. Dollar-neutral long-minus-short strategies based on these sensitivities prove explanatory power of historical intraday volatility in Sweden, where post-event reactions and uncertainty were evident. The model identified those stocks that are most sensitive to the election outcome.