The Mass Politics of Financial Markets

Abstract

Research on the role of the democratic process—and particularly that of mass political opinion—in financial markets is scarce. Extant published research that either principally or tangentially ad-dresses this subject matter commonly focuses on elections as sources of political risk in financial markets. In this work, I consider the relationship between political dynamics and financial market outcomes beyond elections. I focus on the connection between mass political opinion and treasury rates as well as the connection between mass political opinion and stock market volatility. In both cases, I propose theories that are conditional on government ideology and institutional factors. In a methodological chapter, I explore an empirical challenge I came across when developing an empirical strategy in the previous chapters: modeling conditional theories with error correction models. Ultimately, four substantive questions are answered in this study: Does mass political opinion influence financial markets beyond elections? Do these effects hold across different categories of investment assets? Under what conditions does mass political opinion influence markets? Why and when do markets respond to mass political opinion? Broadly, the work presented here contributes to an understanding of the intricate relationship between political risk and financial markets.