AUTHENTIC OR SYNTHETIC: AN EVENT STUDY ANALYSIS OF ELECTION RESULTS ON SHARE MARKET INDICES OF COLOMBO STOCK EXCHANGE

Abstract

Improvement in the share market always gives positive impression to the world about the political stability of the ruling party. Interested parties always see the market indices went up after conclusion of an election. Share market is one of the main capital markets that generate long term capital to the business community. Positive or negative reaction in the share market shows the acceptability of the business community to the elected president or elected government. The study is to explore the genuineness of these improvements in share market due to effect of election results as Authentic or Synthetic. Therefore the main objective was to see any abnormal performance in the share market indices as a result of the election. Event Study method was used as the main analytical tool in analysing data. (15 days prior and after the event date) Event date is the date in which election results released to the public. Convenience sampling was used to select the sample. All the presidential and parliament elections held after 1992 were taken for the research. All data are secondary data collected mainly from Colombo Stock Exchange and Election department. Findings of the research reveal that overall abnormal performance existed in the days after the event occurred date in most of the presidential & parliament elections.
ASPI & MPI showed positive reaction after event date. The Abnormal performance of the market was converted back to normal after few weeks of the event date. In most of the occasions it was positive reaction from the share market after a presidential or parliamentary election. Performance of the share market will be decided by mainly two factors namely fundamental and non fundamental. This is a study of non-fundamental factor being affected in the market performance. Presidential or parliament election result dates can be considered as event dates and positive abnormal performances can be expected after those event dates. Investors are advised to see the possibility of taking capital gains after conclusion of an election.

Key Words: Event Study, Election, Result, Share Market Indices, Performance

For full paper: fmscresearch@sjp.ac.lk