The Global Stock Market Reactions to the 2016 U.S. Presidential Election

Abstract

Donald Trump’s victory in the 2016 presidential election was a political surprise to almost everyone, domestically and internationally. This paper investigates international investors’ reaction to this apparent global political surprise. Employing an event study methodology, we test the three widely known behavioral hypotheses concerning international investor reaction to this unexpected news, that is, the Overreaction Hypothesis (OH), the Uncertain Information Hypothesis (UIH), and the Efficient Market Hypothesis (EMH). The study results show that most of the indexes initially reacted unfavorably to the announcement of Trump’s win; however, subsequent stock index returns exhibit corrective upward patterns consistent with the predictions of the OH, except for the Latin American and France markets. The reactions of the other indexes appear to be favorable and in line with the prediction of the UIH. These findings suggest that in most countries under study, investors could utilize contrarian strategies to generate abnormal returns, as evidenced by price reversal following the arrival of the surprise. JEL classification: G14, G15.

In Dice We Trust: Uncertainty Displays for Maintaining Trust in Election Forecasts Over Time

“…These forecasts serve various stakeholders' interests, and impact public sentiment [113], voter turnout [73,108], as well as campaign strategies [66]. High-profile election forecasts, like FiveThirtyEight's [3] and The Economist's [5] U.S. presidential forecasts, come under intense scrutiny and can shape both domestic and international perceptions [28,44]. Trust in these election forecasts is paramount, influencing the public's confidence in the democratic process and the integrity of the electoral system.…”

“…Despite extensive literature on uncertainty communication and especially uncertainty visualization, the 2016 U.S. presidential election stands as a potent testament to this challenge. With a 71% win probability for Hillary Clinton on the final day [2], the election outcome for Donald Trump was unexpected for many, leading to public skepticism, distrust, and dissonance in both the forecasts and election outcomes [44,103]-even though a 71% win probability indicates high uncertainty. Gaining public trust is not a one-time endeavor.…”