Does political uncertainty affect investment in the Ibex 35?

Does political uncertainty affect investment in the Ibex 35?

  • Beatriz Garcia Costa ,

Keywords:

Political uncertainty, financial markets, investment, risk aversion, investor mood

Abstract

Intrinsic factors influence the Stock Market that directly affect the movements of the Ibex 35, such as; the interest rate, socio-cultural factors, political, economic and financial factors. The objective of this article is to analyze whether political uncertainty affects stock investment. To this end, an econometric analysis has been carried out, using the historical series of the Ibex 35 as endogenous variable, while the explanatory variables of the model are the assessments of the current political situation collected in the barometer carried out by the Sociological Research Center. This study determines as the main conclusion that the political situation does affect the level of risk aversion of investors and, therefore, Investor behavior is not as rational as a perfect efficiency of markets requires. It is concluded that decision making is conditioned by the investors’ state of mind, which is affected by political uncertainty at the time the investment is carried out.

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