The Rise of Populism: Effect on National Stock Market Returns and Volatility

Abstract: This paper investigates whether the increase in electoral success of populist extreme parties has an impact on short-term equity market returns and volatility by looking at a sample of 192 European elections. Using a cross-national regression methodology, we find that a large change in the share of seats in the national parliament held by populist extreme parties has a negative impact on national equity market returns. This confirms the view often articulated in popular press that populist extreme parties have a negative effect on a country's long-term economic development. We also find that populist extreme parties entering into government post-election increases the volatility around the election day, while there is no indication of an impact on volatility of the change in populist extremist seat share.