What is the impact of french elections on the stock market returns of the CAC 40 and Euro Stoxx 50 indices? An event study and regression analysis of the sensitivity of the stock market to political events in France

Abstract

This study employs an event study and regression analysis to explore the impact of French presidential elections on stock market returns for the CAC 40 and Eurostoxx 50 indices. We seek to determine the sensitivity of French stock markets to political events by evaluating election seasons spanning 2002 to 2022. To better understand market reactions, the study uses the Efficient Market Hypothesis (EMH) and Behavioral Finance as theoretical frameworks. Our event study research indicates considerable abnormal returns around election dates, implying that political events influence market performance. The regression research also revealed the impact of macroeconomic variables like GDP growth, inflation rate, and election margin on the cumulative abnormal returns (CAR) of the CAC 40 and Eurostoxx 50 indexes. The findings show that stronger GDP growth and lower inflation rates are associated with positive CAR, but larger election margins are associated with negative CAR. The findings are consistent with earlier research on the impact of political uncertainty on financial markets, bolstering the idea that elections influence market volatility and investor behavior. This study adds to our understanding of how political events influence market dynamics and offers useful insights for investors and governments in managing election-related risks.