GENERAL ELECTIONS AND THE STOCK MARKET

Abstract

India holds general elections every five years to elect representatives for the Lok Sabha, ultimately determining the Prime Minister. These recurrent elections significantly impact the political landscape and investment environment, influencing economic policies, regulatory frameworks, and sectoral dynamics. Indian elections are riddled with far-reaching consequences, with their effects not only limiting themselves to the political landscape but also marginally affecting the stock market and economy. Uncertainty is ubiquitous; ranging from the common sundry labourer to the most accomplished business, a sense of unease underlines the election period. The volatility caused to stock market performance remains the primary anxiety for the market participants, analysts, and policymakers, and there is a certain element of political risk associated within the psyche of potential stakeholders. The relation between political risk and the capital market is not so significant in the long term although it does affect the market in the short term as it dries out quickly soon after the election result is announced. The election result primarily increases the volatility in the market for a few days. Studies have found that the highest average return occurred once the result was announced and subsequently settled down in a few days. A spike of variability was observed in the next seven days period after the election result announcement. It has been observed that the pre-election period usually gets more affected than the post-election period. Political transitions can trigger substantial changes in government policies, economic priorities, and regulations, subsequently affecting various sectors of the economy and companies, the purpose of this paper is to highlight the actual impact of general elections on the stock market. In many instances, the market only substantially fluctuates as a result of political announcements such as law amendments, regulation promulgation, and national elections. However, while