Is Heightened Political Uncertainty Priced in Stock Returns? Evidence from the 2014 Scottish Independence Referendum

Darby, Julia and Gao, Jun and Lucey, Siobhán and Zhu, Sheng (2019) Is Heightened Political Uncertainty Priced in Stock Returns? Evidence from the 2014 Scottish Independence Referendum. Discussion paper. University of Strathclyde, Glasgow.

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Abstract

We contribute to a growing literature on economic and financial impacts of political uncertainty by assessing whether heightened uncertainty associated with an important political event is priced into stock returns. Our particular study looks at the period surrounding the 2014 Scottish Independence Referendum, although we argue that our approach and findings have wider relevance to assessing impacts of other political events, including Brexit. Using company data and portfolio-level analysis we document significant variation in returns and demonstrate that uncertainty betas help predict the cross-sectional dispersion of returns. These findings are robust to inclusion of controls (standard risk factors), but no longer hold when a Scottish specific uncertainty measure is replaced with UK-wide measures of either economic policy uncertainty or stock market uncertainty, adding support to the hypothesis that our findings are driven by referendum related uncertainty. We conclude that heightened political uncertainty was priced during the period surrounding the referendum, i.e. that uncertainty averse investors succeeded in gaining compensation for holding the volatile stocks of Scottish headquartered companies

ORCID iDs

Darby, Julia ORCID logoORCID: https://orcid.org/0000-0003-4425-7222, Gao, Jun, Lucey, Siobhán and Zhu, Sheng;
  • Item type:Monograph(Discussion paper)
    ID code:73445
    Dates:
    Date
    Event
    14 August 2019
    Published
    Notes:Strathclyde Discussion Papers Economics, No. 19-13.
    Subjects:Social Sciences > Finance
    Department:Strathclyde Business School > Economics
    Depositing user: Pure Administrator
    Date deposited:04 Aug 2020 13:12
    Last modified:11 Nov 2024 16:06
    URI:https://strathprints.strath.ac.uk/id/eprint/73445
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