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Does stock market performance affect the government satisfaction rating in the UK?

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Abstract

In this study, we attempt to answer the question of whether stock market performance affects the government satisfaction rating in the long run in a sample period spanning 1984:Q1 to 2013:Q2 in the UK. We examine both the equilibrium relationship and the causality relationship between stock market performance and government satisfaction rating. The results indicate that the voters are sensitive to the economic shocks and hold responsible for the government. The empirical results confirm the responsibility hypothesis.

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Notes

  1. The Chicago Board Options Exchange’s (CBOE) Volatility Index (VIX) is called investor fear gauge, and it is calculated based on S&P 500 index by Black and Scholes (1973), Schwartz et al. (2008).

  2. Eta\(^{\circledR }\) model includes 18 economic factor: FTSE 100 index, gold index, corporate bond (BAA) yield, consumer price index, short-term government bond yield, intermediate-term government bond yield, long-term government bond yield, Tokyo Stock Exchange index, the Euro exchange rate, agricultural exports, housing starts, monetary base, M2 money supply, corporate cash flow, unemployment rate, auto sales, new durable goods orders, and energy prices. It is developed by the Center for Computationally Advanced Statistical Techniques (Chong et al. 2011).

  3. “FTSE 100 =1000 at end of Dec 1983” (ons.gov.uk).

  4. “With chained volume measures, instead of updating the base year every 5 years, it is updated every year, meaning that, in practice, every series to be presented in real terms is estimated both in current prices and prices of the previous year ” (ons.gov.uk).

  5. When we use the breakpoint dates obtaining endogenously in ZA approach in Chow test (1960) as an exogenously we verify that the all the breakpoint dates provided from ZA refer the structural change in the specified breakpoints. Chow test F-Statistics for CPI, FTSE, GDP, GSR and UR are 105.1544 (0.000), 55.562 (0.000), 41.5664(0.000) , 24.727 (0.000) and 5.417 (0.021), respectively. P values are in the paranthesis.

  6. One of the reasons why 1998Q2 is determined by WE test may be the dot-com bubble case. It is called also “stock market boom” in the USA. Between 1990 and the peak in mid-2000, US equity prices increase nearly fivefold. The stock market boom in the rest of the world is quite impressive by historical standards (Kraay and Ventura, 2007). The other one may be the Asian financial crisis.

  7. It is accepted in the economic voting literature that FTSE and GDP act in the same direction with the presidential approval rating whereas CPI and UR act in the opposite direction. This means increasing (decreasing) the FTSE or GDP increases (decreases) the presidential approval rating. However, increasing (or decreasing) CPI or UR decreases (increases) the presidential approval rating. By and large, theoretically and empirically, the effects of GDP and FTSE are expected to be positive and that of CPI and UR are to be negative.

  8. Hatemi-J assumed that \(y_t^+ =(y_{1t}^+ , y_{2t}^+ )\) in his paper. He also remarked that for negative shocks, the vector \(y_t^- =(y_{1t}^- , y_{2t}^- )\) is used. Other combinations are also possible.

  9. Hatemi-J indicates that this information criterion is robust to autoregressive conditional heteroskedasticity (ARCH).

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Authors and Affiliations

  1. Yildiz Technical University, Istanbul, Turkey

    Sedef Sen & Murat Donduran

  2. University of Oklahoma, Norman, OK, USA

    Sedef Sen

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  1. Sedef Sen
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  2. Murat Donduran
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Correspondence to Sedef Sen.

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We are grateful to the Editor of Journal and reviewers for their substantial remarks and suggestions.

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Sen, S., Donduran, M. Does stock market performance affect the government satisfaction rating in the UK?. Empir Econ 53, 999–1009 (2017). https://doi.org/10.1007/s00181-016-1156-7

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