Stock markets and economic uncertainty: Roles of legislative sessions and coalition strength

Abstract

Legislative sessions constitute a critical component of the Westminster Parliamentary system, in a country like India. They play a crucial role in important policy decisions that have ramifications for the corporate sector’s cash flows, leading to changes in stock price and volatility. Using data from India, we find that legislative session meetings influence stock price volatility, and the effect is inversely proportional to the strength of the ruling coalition government. These findings advance the theories of intraparty portfolio allocation and partisan trust discrimination in representative democracies based on intraparty and interparty competition in a ruling alliance. Our findings suggest that political competition reflected through government strength in legislative session meetings shapes the mechanism of economic uncertainty, i.e., the foundation of asset price volatility. We draw implications for the conduct of parliamentary business as well as stock investment strategy.