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Political Elections and Market Reactions: The Effect of German Federal Elections on Stock Market Performance

Kratschmer, Colin Julian LU and Schuon, Lukas LU (2025) NEKN02 20251
Department of Economics
Abstract
The year 2025 was marked by two major political events: the presidential election in the United States and the federal election in Germany. Such events frequently highlight the potential influence of election outcomes on financial markets, a relationship that has been of substantial interest in the academic literature. This study therefore examines whether German federal elections between 1990 and 2025 have influenced stock market performance in Germany. The analysis includes all publicly traded firms in Germany and further distinguishes between eleven industry sectors and four firm size quartiles. Methodologically, the study combines an event study approach with multivariate regression analysis to detect and explain abnormal stock... (More)
The year 2025 was marked by two major political events: the presidential election in the United States and the federal election in Germany. Such events frequently highlight the potential influence of election outcomes on financial markets, a relationship that has been of substantial interest in the academic literature. This study therefore examines whether German federal elections between 1990 and 2025 have influenced stock market performance in Germany. The analysis includes all publicly traded firms in Germany and further distinguishes between eleven industry sectors and four firm size quartiles. Methodologically, the study combines an event study approach with multivariate regression analysis to detect and explain abnormal stock returns. The findings indicate that right-wing election victories are generally associated with positive abnormal returns, while left-wing wins lead to negative market reactions. However, the effects vary across industries. For instance, the alternative energy sector shows significant positive abnormal returns following left-wing victories, whereas the pharmaceuticals and chemicals, real estate, financial institutions and technology sectors benefit from right-wing victories. These insights are relevant for academics, investors, and policymakers, as they offer valuable insights into capital market behaviour in Germany around the time of federal elections, both in general and within specific industries and firm size categories. (Less)
Please use this url to cite or link to this publication:
author
Kratschmer, Colin Julian LU and Schuon, Lukas LU
supervisor
organization
course
NEKN02 20251
year
type
H1 - Master's Degree (One Year)
subject
keywords
Event study, multivariate regression, federal election, Germany, partisanship, policy uncertainty, left-wing, right-wing
language
English
id
9193885
date added to LUP
2025-09-12 10:42:01
date last changed
2025-09-12 10:42:01
@misc{9193885,
  abstract     = {{The year 2025 was marked by two major political events: the presidential election in the United States and the federal election in Germany. Such events frequently highlight the potential influence of election outcomes on financial markets, a relationship that has been of substantial interest in the academic literature. This study therefore examines whether German federal elections between 1990 and 2025 have influenced stock market performance in Germany. The analysis includes all publicly traded firms in Germany and further distinguishes between eleven industry sectors and four firm size quartiles. Methodologically, the study combines an event study approach with multivariate regression analysis to detect and explain abnormal stock returns. The findings indicate that right-wing election victories are generally associated with positive abnormal returns, while left-wing wins lead to negative market reactions. However, the effects vary across industries. For instance, the alternative energy sector shows significant positive abnormal returns following left-wing victories, whereas the pharmaceuticals and chemicals, real estate, financial institutions and technology sectors benefit from right-wing victories. These insights are relevant for academics, investors, and policymakers, as they offer valuable insights into capital market behaviour in Germany around the time of federal elections, both in general and within specific industries and firm size categories.}},
  author       = {{Kratschmer, Colin Julian and Schuon, Lukas}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Political Elections and Market Reactions: The Effect of German Federal Elections on Stock Market Performance}},
  year         = {{2025}},
}