Special events and their impacts on stock markets

Abstract

This thesis examines whether a special event will have an impact on stock market returns. Shanghai Composite Index, S&P 500, and CAC 40 are used as representation of the Chinese, U.S., and French stock markets. The author makes a hypothesis of the correlation between political influence and equity market returns. The hypothesis is tested in the thesis. The author also examines whether or not stock markets exhibit abnormal return patterns before and after the date when these events occurred. The finding of the research is that if a country is highly influenced by politics and has political information asymmetry, the stock market will exhibit abnormal (usually consistent negative) return patterns in the months prior to political elections. If a country has less political information asymmetry, there will be fewer abnormal return patterns in the stock market. This thesis also discovers that generally, in the three months prior to a war announcement or outburst of a sudden event, U.S. stock market usually exhibit negative monthly returns. While in the three months after these events, monthly index returns are generally positive.