The Effect of Domestic and Foreign Political

Events on the US and London Stock Markets

Wasif AliMichael Bechara

Priya ChandrashekarZhanpeng Ruan

Agenda• Motivation & selected events• Data collection and adjustment• Approach and code• Analysis results• Conclusion• Next steps

Motivation• We have gone through a politically

tumultuous past few years

• Domestic and Foreign

• What impact does this have on our finances?

• Goal: Figure out how different domestic and foreign political events impact two major exchanges: NASDAQ and the London Stock Exchange Group

Events● 2008 Presidential Election

● 2012 Presidential Election

● 2016 Super Tuesday

● Greek Financial Crisis

● Scottish Independence 2014

● BREXIT

About the Data● 30 stocks from NASDAQ and 30 stocks from LSEG

■ Concatenated each exchange into two separate data frames

• Adjusted for formatting (column names, file format etc)

• Converted these data frames into clean CSV files to be used for analysis

● Adjustment of units■ Since we are using different market and timeframes, adjustments with the

prices are needed

• Currency Rate

• Inflation Rate

Increasing trend in CPI shows important of inflation

Source: Federal Reserve Bank of St. Louis

Approach and Code- Inflation rate: computed using Consumer Price Index (CPI)

- Currency exchange rate: extrapolate missing data

- Difference between pre-event and post-event average stock price

- Scatter plot of price difference

- Match-paired hypothesis test on price difference

- Confidence interval, p-value, etc.

- Bar graph of daily total volume

Results: no statistically significant impact on US market

- Relatively narrower confidence interval

Results: no statistically significant impact on UK market

- Relatively wider confidence interval, indicating more volatility

Trading volume shows no change in investing behaviorExample: 2008 Presidential Election

Example 1: Scottish IndependenceUS Market- CI = [-9.78, 4.72]- CI Width = 14.50- T-value = -0.71- P-value = 0.48

UK Market- CI = [-163.18,

78.49]- CI Width = 241.67- T-value = -0.72- P-value = 0.48

Effect on Marketplace Visualizations

US UK

Example 2: 2016 Super TuesdayUS Market- CI = [-11.10,20.41]- CI Width = 31.51- T-value = 0.60- P-value = 0.55

UK Market- CI = [-101.07,

174.85]- CI Width =

275.9231968- T-value = 0.55- P-value = 0.59

Effect on Marketplace Visualizations

US UK

Drawing Conclusions• UK marketplace is relatively more

volatile than US

• Investors should not make rash decisions ➢ Decrease dumping of stocks

during a politically tumultuous time

• The prospect of shorting stocks is only viable within a very short window ➢ Timing is critical!

Next Step- Testing smaller window- Expanding sample size- Test effect from 2016

Presidential elections- Expanding to other

global markets