Political connection, government policy, and investor trading: Evidence from an emerging market

Chih-Yung Lin, Po Hsin Ho, Chung Hua Shen*, Yu Chun Wang

*Corresponding author for this work

Research output: Contribution to journalArticle

14 Scopus citations

Abstract

This study investigates whether political connection (PC), government policy (GP), or both affect stock returns before and after the Taiwanese 2008 presidential election. We also examine whether the two effects influence the five types of investor trading during the election. Past studies have separately focused on either the PC or the GP effect, whereas this study considers both effects. Specifically, we consider five types of investors, namely, foreign investors, security investment trust companies (INVTRUSTs), security dealers, board of directors and supervisors, and individual investors. We find that firms connecting only with the winning party exhibit positive abnormal returns, and only INVTRUSTs increase the shareholdings of these firms (PC effect). Our results do not support the GP effect alone. Instead, we identify that firms with joint PC and GP effects have the abnormal returns during election periods.

Original languageEnglish
Pages (from-to)153-166
Number of pages14
JournalInternational Review of Economics and Finance
Volume42
DOIs
StatePublished - 1 Mar 2016

Keywords

  • Government policy
  • Investor trading
  • Political connection
  • Presidential election
  • Stock returns

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