Does Popularity of Political Leaders Matter in the Indian Stock Markets? A Comparative Study of Four Lok Sabha Elections from 2004 to 2019

Abstract

This study explores the effects of investors' attention to popular political leaders on the daily stock market returns as well as realised trade volumes in the NSE Nifty and BSE Sensex stock markets in India. It uses the Google Search Value Index data for political attention variables in India along with the NSE Nifty and BSE Sensex data for market returns and trade-volume over the past four Lok Sabha (LS) Election periods in 2004, 2009, 1014 and 2019 separately. With the linear Autoregressive Regression (AR-1) method for augmentation of lagged dependent variable, firstly, the relevant market returns and trade-volumes both are separately explained by the attention search variables, a homogeneity factor of the competitive market, and the augmented lagged dependent variable. In a robustness test, the homogeneity factor is excluded. The same is cross-checked by adding a heterogeneity factor to the second approach and using a cross-market dynamics. Besides showing significant standalone granger casualty of the parameters in market dynamics and attention dynamics, it shows homogeneity and heterogeneity effects for the market returns and realised trade-volume in both the stock markets. This study can improve investors' understanding of the impacts of attention searches for popular political leaders in India. This study ingeniously contributes to the literature with an idea of investors' political attention impacts on the Indian stock markets. It shows that stock market dynamics at the LS Elections political attention dynamics, investors' adaptive long-memory, and the rest is a mixed one of the two.