The Rise of the New European Military Industrial Complex under Trump

Abstract: Politics and elections have always affected business sectors in different ways. Sometimes the election of some president can mean prosperity for some business sectors or grave decline for others. In 2016, the American people made the choice to elect Donald J. Trump as their next president. Donald Trump is an exceptional character with many controversial campaign promises, among them was the promise of making Europe defend itself. The purpose of this thesis is to examine the effect of this promise on a related industry, the European defence industry. More specifically, stock returns of listed European defence companies will be studied during a period of 2 days after Donald Trump's election. In this study, substantial abnormal returns ranging from 2% to 8 % were observed following Trump's election on either the 9th or 10th of October. It was also discovered that the abnormal returns are statistically significant with at least 95% confidence level. However, for most of the companies within the sample, the abnormal returns were significant for even bigger confidence intervals. The findings establish support for the hypothesis that investors expected that a natural reaction by the European nations to Trumps election will be to increase their military spending. This expected increase in turn would mean more business and growth for European defence companies and naturally, the stock market efficiently translates this into higher stock returns.