




































Asian Finance & Banking Review 

Vol. 5, No. 1; 2021 

ISSN 2576-1161    E-ISSN 2576-1188 

Published by CRIBFB, USA 

 

1 

 

DOES ELECTION IMPACT ON STOCK MARKET RETURNS IN 

BANGLADESH? 
  

 

Gourav Roy 

MBA Graduate 

Department of Finance 

University of Dhaka 

Dhaka, Bangladesh 

E-mail: gouravroy.du@gmail.com 

 

Md Atiqullah Khan 

MBA Graduate 

Department of Finance 

University of Dhaka 

Dhaka, Bangladesh 

E-mail: writetoatiq@gmail.com 

 

 

ABSTRACT 

This paper investigates the impact of parliamentary general election on the stock market returns 

by considering the previous fifteen days and the after fifteen days of each of six elections in 

Bangladesh held between 1991 and 2018. The study analyzed the election effect on stock returns 

through considering both abnormal returns by choosing 20 stocks as a proxy of portfolio motive 

of the investors and the broad index returns as a measurement of whole market scenario. The 

study employed descriptive statistics, t-tests, and F-tests to understand the impact of election by 

gauging the changes in return series. Descriptive statistics showed very high differences in 

means, standard deviations, and volatilities. Paired t-tests showed significant differences 

between the means and F-tests showed significant differences between the variances of the 

returns during before and after days of these elections. The results were the same for abnormal 

returns and broad index returns. The impacts of individual election on the returns were also 

found as the same in most cases. The study has found some very useful insights part of which can 

benefit the policymakers to reform the policies. The common investors and the financial market 

participants can also make better investment plan.  

 

Keywords: Election, Event study, Stock returns, DSE, Bangladesh.  

 

JEL Classification Codes: D72, G14, P48.  

 

INTRODUCTION 

Stock market is considered as the mirror of the economy of a country (Jensen, Mercer & 

Johnson, 1996). The growth of the stock market is also an evidence of economic progress of a 

country. The stock market determines how capital is formulating in the veins of a nation. Thus, 

the fluctuation or volatility of a stock market means a big thing to be concerned of for the 



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investors, government, and common people as well. Different economic and non-economic 

factors impact on it. Different political forces and political shifts play as very important factors 

for almost all the stock markets.  

The political events determine what will be the economic changes in the country for the 

future and the present. With this consideration, the parliamentary general election is a highly 

noticeable event that can highly impact on an economy including the stock market performance. 

Bangladesh is a country with having the total GDP of USD 313 billion (Haroon, 2020). Dhaka 

Stock Exchange (DSE) is the major stock exchange of Bangladesh with having over 383 

companies and several bonds listed on it. The total market capitalization of it is about USD 59.32 

billion (The Financial Express, 2021). As like other stock markets around the world, stock 

market of Bangladesh also gets influenced by different forces.  

As Bangladesh is a very politically indulged country and the economic decisions and 

financial activities are highly influenced by political decisions and structural planning of ruling 

government, so does the base of the study get motivation to dig a hole to know the impact of 

election on the stock market performances of Bangladesh. From the aspect of Bangladesh, the 

relation of stock market volatility with the election movements and events can also have strong 

correlations.  

Surely, it requires a high level of investigation to know whether there exists any relation 

between stock market returns and general election in Bangladesh. If it exists, then what the 

directions are that actually follow. Moreover, the investors are not properly aware of the growth 

stocks and value stocks and the political momentum with respect to these types of stocks. 

As the general elections determine who will be in governance for the next five years, the 

common investors and financial market participants always try to take a safe position before the 

general election. Sometimes the herd instinct of the investors makes the market too much volatile 

and also makes it go up too much imprudently or go down too much drastically. Thus, the 

background of the study is fully concentrated on analyzing the relationship between 

parliamentary general elections and stock market returns. This paper aims at fulfilling these 

objectives: 

 To understand whether there exists any relationship between parliamentary general 

election and stock market returns in Bangladesh. 

 To inform the common investors, financial market participants, and researchers about 

the election effect on the stock market returns of Bangladesh. 

The study incorporates the information for 29 years (1991-2018) to determine the 

election effect on the market performances. Dhaka Stock Exchange (DSE) has been considered 

as the proxy of stock exchanges in Bangladesh to avoid any repetitive information in the study. 

For structuring the data, the event window has been considered as the election date and the 

estimation window has been considered as the 15 days before the election and 15 days after the 

election as per the Market Model (MacKinlay, 1997) and the necessary key techniques of some 

steps that have been guided by (Kabiru, Ochieng, & Kinyua, 2015).  

The study has some limitations. The findings are based on historical information and not 

progressive in reality. There is no concrete evidence that the result of the study has the 

possibility of repetition in future. Due to the incongruence of data, 2001 election wasn’t taken 

into consideration in this study. Even though existence of these limitations, the study is believed 

to control the other corners to legitimately represent the accurate view of the implementation of 

the purpose of the study. 



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The studies and the findings conducted in previous researches are described in second 

part of this paper. The third part of the paper discusses about the data and methodology of the 

studies. The fourth part discusses about the analysis and findings and the last part includes 

conclusion and policy recommendations. Thus this paper completes the investigation of the 

impact of parliamentary election on stock market returns in Bangladesh. 

 

REVIEW OF LITERATURE 

There prevail some previous studies to understand the impact of general election on stock market 

performance. Some of the relevant literature reviews are discussed below:  

Niederhoffer, Gibbs and Bullock (1970) examined the stock market actions by 

considering the before and after the days and months of US presidential general elections to find 

out the connections between US political events and the US stock market movements which 

created many investigations and interests. Later, Jensen, Mercer & Johnson (1996) stated that the 

stock market gets influenced by the common investors’ behavior and trading strategies which are 

also influenced by the economic and political changes that take place in the country.  

Foerster and Schmitz (1997) in their study tried to focus on the US parliamentary general 

election cycles where there existed a concrete relation between stock markets and political event 

like PGE. The study not only covered the US stock markets but also covered the OECD 

countries. In this study, total 18 countries were considered and the spectrum of the study was 

from 1957 to 1966. The study showed that the pattern was existent between the variables. But the 

expectation that US stock markets would be mostly affected by this parliamentary general 

election and the other OECD countries would not be affected significantly was not true. The 

hypothesis was rejected in the sense that both the US countries and the OECD countries had 

similar sort of significance with respect to the parliamentary general election.  

Pantzalis, Stangeland, and Turtle (2000) tried to show some scrutiny on the stock market 

performance moving around the parliamentary general election on a national level and 

international scale of 33 countries and discovered that the criteria of Index Abnormal Returns 

(IARs) are usually having a significantly differentiating outcome near the fifteen days plus and 

minus the event. Booth and Booth (2003) analyzed the presidential mystery to advantage small 

capitalized stocks, where no noteworthy variance between the returns of large capitalized stocks 

during the regimes of both democratic and republican presidents.  

At the same time, Santa-Clara and Valkanov (2003) tried to find out some linkage 

between US parliamentary general election and US stock market movements. They focused on 

the study in a different angle from the previous researches. They focused on the capitalization of 

stocks and how the large and small stocks did perform under the event of parliamentary general 

election. They found that the large capitalized shares tended to perform better when the 

government of USA was taken over by the democratic parties. It has been seen that large-cap 

stocks and securities tended to get a 7% better result under the Democratic Parties of US. But the 

small stocks tended to get a better result of 22% than the normal cases under the Republican 

Parties.  

Later, Anderson, Malone & Marshall (2008) distinguished that the political impacts of 

USA are not as easy as it can be for other countries. The impacts and consequences are quite 

complicated. The governmental and political finance during the PGE is not clearly exposed in 

USA. That is why the common investors solely depend on the expansionary goals of the political 

candidates of USA and based on that they tend to take decisions where to invest and where to 

not. 



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Bialkowski, Gottschalk, and Wisniewski (2007) studied a case including 27 countries 

who were the members of OECD in which they tried to show some relation of national elections 

tempting to higher stock market volatility. Their experimental outcome of the research shows 

that investors (institutional and financial market participants) are still astounded by the ultimate 

casting of votes. Stock prices tend to react powerfully in response of this astonishment and 

momentarily raised levels of uncertainty.  

Irungu (2012) examined the stock data elements of parliamentary general election 

consequences under the announcement at the Nairobi securities exchange by means of the 

methodologies used in events study for the ten year periods from 1997 to 2007 and instituted that 

the CARs (Cumulatively Abnormal Returns) showed a dropping trend or function of movement 

in the periods before the announcement and a slower or a medium pattern increase after the event 

happening announcement representing to market receiving and reacting to the information in the 

investors’ confidence and stability in political balance.  

Menge, Mwangi, and Kimani (2014) detailed the outcome of parliamentary general 

election on stock market yields at the Nairobi Securities Exchange (NSE) implementing the 

methodology of the events studies that covered an eleven year periods from 2002 to 2013 which 

established the fact that that actual returns using the return series formula were pointedly higher 

before the event of elections but not so much higher after the event of election periods. The 

assumptions made out of the consequences that the expected returns as well as the market returns 

tend to show a specific movements of increase before the election but decrease or remain 

stagnant after the election. Here is the list of the findings of some studies regarding the research:  

 

Table 1. Evidences that Found Link between Elections and Stock Market Movements 

 

Event Researched 

by 

Impact on Stock 

Market before the 

Event 

Impact on Stock 

Market after the 

Event 

Existence 

of 

Relation 

1987 GE*, 

UK 

Lehander 

and 

Lönnqvist 

(2011) 

British Telecom share 

price fell sharply. 

British Telecom 

share price moved up 

sharply. 

Existent 

Ten 

developed 

countries’ 

GEs 

Niederhoffer, 

Gibbs and 

Bullock 

(1970), Peel 

and Pope 

(1993) and 

Gemmil 

(1992) 

The broad index goes 

down before the 

election. 

The Broad Index 

went up after the 

election. 

Existent 

GEs of USA Booth and 

Booth (2003) 

The small stocks 

underperformed before 

election 

The small stocks 

over performed after 

elections 

Existent 

GEs of USA Hensel and 

Ziemba 

(1995), 

The large stock in USA 

had almost no impact 

before election 

The large stock in 

USA had almost no 

impact after election 

Non-

Existent 



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GEs of USA Santa-Clara 

and 

Valkanov 

(2003) 

The large stocks 

performed better in 

democratic presidency 

The large stocks 

performed better than 

before when 

democratic 

presidency continued 

Existent  

GEs of USA 

and impact on 

18 OECD 

Countries 

Foerster and 

Schmitz 

(1997) 

There were huge 

downfall before 

presidency election in 

these eighteen countries’ 

stock exchanges 

Whether the stock 

index will go up or 

down depended on 

who is going to chair 

the presidency of 

USA 

Existent 

Study on 

New Zealand 

stock market 

due to GE.  

Cahan et al., 

(2005) 

Broad index goes up 

generally before election   

Broad Index goes 

down 

Existent 

27 OECD 

Countries’ 

GEs and their 

respective 

stock 

exchanges 

Bialkowski, 

Gottschalk 

and 

Wisniewski 

(2007) 

Huge volatility among 

stocks; some move up 

and some down 

The stocks related to 

government 

financing tended to 

move up while the 

others faced negative 

changes  

Existent 

Belgium’s 

GE 

Vuchelen 

(2003) 

Huge volatility among 

stocks; some move up 

and some down 

The volatility tends 

to continue even after 

one month 

Existent 

Taiwan GE Hung (2011) Election cycle exists Fluctuation occurs 

after election 

Existent 

Nairobi Stock 

Exchange and 

GE in Kenya   

Irungu 

(2012) 

Stock index falls Stock Index rises Existent 

A study 

covering ten 

recent years 

tenure on 

Kenya 

Menge, 

Mwangi and 

Kimani 

(2014) 

Some selected twenty 

stocks had upward trend 

in returns 

Some selected 

twenty stocks had 

downward trend in 

returns. It was found 

of political finance 

involvement. 

Existent 

Note. *GE stands for General Election 

 

The Table 1 shows that the research findings of the previous studies. In the above table, 

almost all of the relevant researches on the same interest fields have been discussed with their 

findings. It is seen that almost in every study the impact of general election on stock market 

movement is existent. But whether stock prices or, index returns will go up or down before or 

after the election was not determined. It’s evident that the impact of general election on stock 

market returns is existent. 

There has been so many researches that have been done on many countries including the 

USA, New Zealand, Kenya, Taiwan, UK, Belgium, European countries etc. But such types of 



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valuable and necessary analysis was yet to be institutionalized and published so far from the 

context of Bangladesh. Again, no such study has been done before that incorporated both the 

abnormal returns and the index returns separately to analyze both the portfolio and index based 

relationship analysis in this aspect. Thus, this paper has been designed to complete this research 

gap.  

 

DATA AND METHODOLOGY 

Data 

The study required stock price data and broad index data for the period of 1991-2019 which were 

collected from Dhaka Stock Exchange website ("Dhaka Stock Exchange", 2019). For the 

analysis of data, MS Excel and Stata software were used.  

 

Methodology 

To understand the impacts of election on stock market returns in Bangladesh, this research 

followed the perspective of the motive of general investors and the perspective of whole stock 

market scenario. The research fully concentrated on event studies and thus the research followed 

the methodologies of event studies. The study followed these steps for analyzing the data:  

 

Step 1: Identification of event interest and event window  

The study considered six out of seven parliamentary general elections held in Bangladesh during 

1991 to 2018 to discover something not investigated before. The Table 2 given below 

summarized the elections and the event windows: 

 

Table 2. The Data Structure of the Event and Estimation Period for the Study 

 

Election Pre-event 

window 

Event date Post-event 

window 

Old govt. New govt. 

1991 before 15 days 27 February, 1991 after 15 days JP BNP 

1996a before 15 days 15 February, 1996 after 15 days BNP BNP 

1996b before 15 days 12 June, 1996 after 15 days BNP BDAL 

2008 before 15 days 29 December, 2008 after 15 days BNP BDAL 

2014 before 15 days 5 January, 2014 after 15 days BDAL BDAL 

2018 before 15 days 30 December, 2018 after 15 days BDAL BDAL 

Note: Here, JP, BNP, and BDAL stand for Jatiya Party, Bangladesh Nationalist Party, and 

Bangladesh Awami League respectively 

 

Step 2: Selection of the firms for constructing investment portfolio  

The study on analyzing the impact of general elections on the abnormal returns of stock market 

of Bangladesh required to select some stocks listed on DSE from portfolio perspective that could 

replicate the stock market from 1991 to 2018. To meet this purpose, the proper selection of the 

stocks was very crucial to get in on a particular to the accurate results.  

 

 

 

 

 



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Table 3. List of Chosen 20 stocks form Diversified Industries  

 

Name of the Stock Respective Industry Listing 

Year 

01. Eastern Cables Limited Engineering 1986 

02. Monno Ceramics Industries Limited Ceramics 1983 

03. Investment Corporation of Bangladesh NBFIs 1977 

04. United Insurance Limited Insurance 1990 

05. Padma Oil Company Limited Fuel & Power 1976 

06. Bata Shoe Company (Bangladesh) Limited Tannery 1985 

07. Sonali Aansh Industries Limited Jute 1985 

08. Heidelberg Cement Bangladesh Limited Cement 1989 

09. Stylecraft Limited Textiles 1983 

10. Olympic Industries Limited Food and Allied 1989 

11. National Tea Company Limited Food and Allied 1979 

12. Beximco Pharmaceuticals Limited Pharmaceuticals and Chemicals 1986 

13. Ambee Pharmaceuticals Limited Pharmaceuticals and Chemicals 1986 

14. Kohinoor Chemicals Company (Bangladesh) 

Limited 

Pharmaceuticals and Chemicals 1988 

15. The City Bank Limited Banking 1986 

16. Uttara Bank Limited Banking 1984 

17. United Commercial Bank Limited Banking 1986 

18. Usmania Glass Sheet Factory Limited Miscellaneous 1987 

19. GQ Ball Pen Industries Limited Miscellaneous 1986 

20. Bangladesh Export Import Company Limited 

(BEXIMCO) 

Miscellaneous 1989 

 

The Table 3 shows the 20 stocks chosen from respective industries. The selected stocks 

were having their smooth existence from 1991 to 2018 so that the study could get enough data of 

the stock prices, dividends, right shares, splits, and bonus shares.  

 

Step 3: Adjustment of the price data 

To make the data authentic and free from different types of biasness, all the price data of these 

20 stocks were adjusted as per cash dividends, stock splits, bonus share issue, right share issue, 

capital gains etc.  

 

Step 4: Calculation of total actual returns 

After that, the study computed the changes recorded in share prices to determine the actual return 

as per following formula:  

 

Actual Return of stock i in day t, AcRit=[(pt-pt-1)/pt-1]  (1) 

 



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Where, Pt = The Price of a stock i in day t; and, Pt-1= The Price of stock i at previous trading day 

(t-1).  

 

Thus, total actual returns were calculated by summing all the returns from these 20 stocks 

through using this formula: 

 

Total Actual Returns in day t, TAcRt=(AcR1t + AcR2t + AcR3t + ……….………+ AcR20t) (2) 

 

Step 5: Calculation of market return series of broad index  

DSEX, the broad index of Dhaka Stock Exchange, has been chosen as a proxy of whole stock 

market. The return series of DSEX for 15 trading days before and 15 trading days after of each 

election have been calculated and used for testing the hypotheses to get the broad picture in case 

the analysis of abnormal returns  fails to replicate the stock movements due to national election. 

The changes in the DSEX index for each day were computed denoted as the whole market return 

or index return as per following formula: 

 

Index Returns in day t, IRt=[(DSEXt-DSEXt-1)/DSEXt-1]    (3) 

 

Here, DSEXt = the DSEX index in trading day t; And, DSEXt-1 = the DSEX index in previous 

trading day (t-1). 

 
Step 6: Calculating Abnormal Returns  

The research applied the formula to get abnormal returns:  

 

Abnormal Returns, ARt=( TAcRt  - IRt)      (4) 

 

Step 7: Calculation of Cumulative Abnormal Returns and Cumulative Index returns 

The cumulative return based analysis was carried on to move the discussion to ultimate 

culmination of result to inform how the general election has impact on the stock market 

movements from the aspect of Bangladesh. Thus, CARs (Cumulative Abnormal Returns) and 

Cumulative Index Returns (CIRs) were also calculated for farther analysis and graphical 

representations. Here, CARs and CIRs show the reaction of the investors before and immediately 

after the election event. The total 30-day CARs and CIRs provide a clear understanding of the 

market response for the election. The CARs and CIRs for each day were calculated as per 

following formulae: 

 

Here, CARt = ΣARt         (5) 

 

Where, CARt is the Cumulative Abnormal Returns in day t. 

And, CIRt = ΣARt         (6) 

 

Where, CIRt is the Cumulative Index Returns in day t.  

 



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Testing the Hypotheses and Models of the Study 

For the overall statistical techniques and their application and interpretation of the study, the 

following hypothesis hold for the entire study:  

H0: There exists no relationship between the election and stock market returns. 

H1: There exists relationship between the election and stock market returns. 

 

In this step, three statistical techniques that have been used to apply with their respective 

hypotheses to prove the main hypothesis of the study and these are:  

Descriptive Statistics: The descriptive statistics helps to find out the essential information about 

the means, standard deviation, minimum and maximum of dataset. This information is necessary 

to know the ranges, volatility levels, and fluctuation extents of the return series data for both 

before and after the elections to compare the differences.  

 

Paired t-Tests: The paired t-test helps to test the hypothesis that whether there exists any 

significant difference between the means of the datasets of before and after the elections. For this 

t-test, the hypotheses are:  

 

H0: There exists no difference between the means of before election datasets and after election 

datasets. 

 

H1: There exists difference between the means of before election datasets and after election 

datasets. 

 

F-Tests: In this study, F-test has been used for checking the hypothesis of finding if there exists 

any significant difference between the variances of the data sets. If the hypothesis is proved, it 

can be concluded that there exists a relation between election and stock market returns. The 

hypotheses are:  

 

H0: There exists no difference between the variances of the before election datasets and after 

election datasets. 

 

H1: There exists difference between the variances of the before election datasets and after 

election datasets. 

 

With 90% confidence interval, all of the datasets for both individual election and altogether are 

to be statistically tested to get to the ultimate decision with holding the hypothesis.  

 

ANALYSIS AND FINDINGS 

This part of analysis has completely focused on the findings received through analyzing the data 

of abnormal returns and index returns. All the analysis was carried on to move the discussion to 

ultimate culmination of result to inform how the general election has impact on the stock market 

returns from the aspect of Bangladesh.  

 

Descriptive Statistics 

The descriptive statistics of the abnormal returns shown on Table 4 indicate that differences 

between the means of the returns of before and after each election are very high, the standard 



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deviations of the abnormal returns in case of the after elections are higher than the abnormal 

returns of before elections in most cases. The minimum and maximum values have huge 

differences representing high volatilities due to election effects.  

 

Table 4. Descriptive Statistics of the Abnormal Returns  

 

Election Obs Mean Standard 

Deviation 

Minimum Maximum 

Before After Before After Before After Before After 

1991 15 -0.1385 0.1422 0.099 0.180 -0.376 -0.422 -0.011 0.326 

1996a 15 -0.0420 0.3278 0.239 0.288 -0.559 -0.116 0.404 0.921 

1996b 15 -0.0571 0.3162 0.338 0.413 -0.483 -0.222 0.707 1.486 

2008 15 -0.1478 0.1946 0.383 0.476 -0.914 -0.779 0.427 0.847 

2014 15 -0.1063 0.0429 0.203 0.152 -0.428 -0.250 0.127 0.290 

2018 15 -0.0013 0.2000 0.454 0.498 -0.304 -0.226 1.593 1.849 

All 

elections 

90 -0.0822 0.2040 0.305 0.365 0.914 -0.779 1.593 1.849 

 

Here, the means of abnormal returns representing the general motive of the investors are -

0.0822 or, -8.22% before all the elections and 0.2040 or, 20.40% after all the elections. It also 

shows that the mean of abnormal returns after election was always higher than the mean of 

abnormal returns before election in each election. It’s evident that the stock market performs 

worse before the election and does better after the election through considering abnormal returns. 

The standard deviation, minimum and maximum limits of the data also describe the findings. 

  

Table 5. Descriptive Statistics of the Index Returns  

 

Election Obs Mean Standard 

Deviation 

Minimum Maximum 

Before After Before After Before After Before After 

1991 15 0.0002 0.0026 0.001 0.007 -0.002 -0.001 0.003 0.027 

1996a 15 0.0008 0.0033 0.007 0.005 -0.012 -0.006 0.019 0.011 

1996b 15 0.0019 0.0046 0.007 0.011 -0.015 -0.016 0.011 0.032 

2008 15 0.0014 0.0032 0.016 0.024 -0.039 -0.029 0.030 0.070 

2014 15 -0.0002 0.0066 0.007 0.006 -0.009 -0.006 0.014 0.014 

2018 15 -0.0014 0.0034 0.002 0.008 -0.005 -0.008 0.002 0.024 

All 

elections 

90 0.0004 0.0039 0.008 0.012 -0.039 -0.029 0.030 0.070 

 

The descriptive statistics of broad index returns represented as whole market scenario 

shown on Table 5 indicate that differences between the means of the index returns of before and 

after each general election are very high, the standard deviations of the returns in case of the after 

elections are higher than the index returns of before elections in most cases. The minimum and 

maximum values have huge differences representing high volatilities due to election effects. The 



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means of index returns representing whole market scenario are -0.0004 or, -0.04% before all the 

elections and 0.0039 or, 0.39% after all the elections.  

It also shows that the mean of index returns after election was always higher than the 

means of index returns before election in each election. It’s evident that the stock market 

performs worse before the election and does better after the election under whole market 

scenario too. The standard deviation, minimum and maximum limits of the data also summarize 

the findings.  

 

Graphical Representation of the CARs and CIRs 

The Cumulative Abnormal Returns (CARs) and the Cumulative Index Returns (CIRs) provide 

the understanding of the trends of the abnormal returns and the index returns. The trends of 

CARs and CIRs with graphical representation are shown below: 

 

   

   

   

-3

-2

-1

0

1

2

3

-15 -10 -5 0 5 10 15

1991 CARs

-0.01

0.00

0.01

0.02

0.03

0.04

0.05

-15 -10 -5 0 5 10 15

1991 CIRs

-1

0

1

2

3

4

5

6

-15 -10 -5 0 5 10 15

1996a CARs

-0.02

-0.01

0.00

0.01

0.02

0.03

0.04

0.05

0.06

-15 -10 -5 0 5 10 15

1996a CIRs

-2

-1

0

1

2

3

4

5

6

-15 -10 -5 0 5 10 15

1996b CARs

-0.04

-0.02

0.00

0.02

0.04

0.06

0.08

0.10

-15 -10 -5 0 5 10 15

1996b CIRs



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Figure 1. Trends of the curves of CARs and CIRs as per each election  

 

In each of the charts shown on Figure 1, left side of vertical line shows the cumulative 

returns for the previous fifteen trading days of election and right side of vertical line shows the 

cumulative returns for the after fifteen trading days of election. Except the chart of 2008 CIRs, 

all the curves shown on Figure 1 indicate the gradual decline in cumulative returns before the 

elections and the gradual increase in cumulative returns after the elections. It’s true for both the 

cumulative abnormal returns and cumulative index returns. Thus, it’s an evidence of the 

significant impact of election on stock returns in Bangladesh from both the portfolio motive of 

the investors and the whole market scenario.  

 

Paired t-Test results for Abnormal Returns and Index Returns 

The paired t-test results of the abnormal returns in Table 6 show that there exist significant 

differences between the means of the returns of before and after days of all the elections. It also 

-3

-2

-1

0

1

2

3

4

5

-15 -10 -5 0 5 10 15

2008 CARs

-0.06

-0.04

-0.02

0.00

0.02

0.04

0.06

0.08

0.10

-15 -10 -5 0 5 10 15

2008 CIRs

-2

-2

-1

-1

0

1

1

2

-15 -10 -5 0 5 10 15

2014 CARs

-0.05

0.00

0.05

0.10

0.15

-15 -10 -5 0 5 10 15

2014 CIRs

-1

0

1

1

2

2

3

3

4

-15 -10 -5 0 5 10 15

2018 CARs

-0.04

-0.02

0.00

0.02

0.04

0.06

0.08

-15 -10 -5 0 5 10 15

2018 CIRs



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proves that in the overall case of test analysis, there exist significant difference between the 

means. Thus, the null hypothesis could be rejected. It means the average of abnormal returns 

before the election get changed after the election.  

 

Table 6. Paired t-Test Results 

 

Election Paired t-test (Abnormal Returns) Paired t-test (Index Returns) 

t value Two-tailed p value  

(90% confidence interval) 

t value Two-tailed p value  

(90% confidence interval) 

1991 -4.5413* 0.001 -1.2721 0.224 

1996a -5.5357* 0.000 -1.2396 0.236 

1996b -2.6801* 0.018 -0.675 0.511 

2008 -1.8596* 0.084 -0.1953 0.848 

2014 -2.5085* 0.025 -3.4409* 0.004 

2018 -3.2762* 0.006 -2.3683* 0.033 

All 

elections 

-6.5839* 0.000 -2.0041* 0.048 

Note: Here ‘*’ indicates significant 

 

The paired t-test results of the index returns shown on Table 6 show that except for 1991, 

1996a, 1996b, and 2008 general elections, all the other elections showed significant relationship 

between general elections and stock market movements. The test showed that in the overall case 

of test analysis, there existed significant difference between the means. Thus, here the null 

hypothesis could be rejected too.  

The way of justification as like the findings through analyzing abnormal returns and the 

proper reasoning behind the acceptance of null hypothesis in 1991, 1996a, 1996b, and 2008 

individual general election under index returns are that the DSEX index was getting the lower 

category and poor quality of stocks offsetting the real moves that were faced by the stocks 

chosen for calculating abnormal returns thus veiling the true information.  

 

F-Test results for Abnormal Returns and Index returns 

The F-test is used for checking the hypothesis of finding if there exist any significant differences 

between the variances of the data sets. If the hypothesis is proved, it can be concluded that there 

exists a relation between election and stock returns.  

 

Table 7. F-Test Results 

 

Election F Test (Abnormal Returns) F Test (Index Returns) 

F value p value (90% 

confidence interval) 

F value p value (90% 

confidence interval) 

1991 0.3024* 0.033 0.0303* 0.000 

1996a 0.6896 0.496 2.3071 0.130 

1996b 0.6676 0.459 0.373* 0.075 

2008 0.647 0.425 0.4426 0.139 



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2014 1.7902 0.288 1.3381 0.593 

2018 0.832 0.736 0.0789* 0.000 

All 

elections 

0.7015* 0.096 0.4646* 0.000 

Note: Here ‘*’ indicates significant 

 

The F-Test results of the abnormal returns in Table 7 show that there were significant 

differences of the variances between the datasets. Only 1991 election accepted the null 

hypothesis. The F-Test of the index returns show that there were significant differences of the 

variances between datasets. Only 1991, 1996b, and 2018 elections accepted the null hypothesis.  

 

Summary of All the Findings 

So, from the above scrutiny and effective analyses of t-tests and F-tests, it can be concluded that 

the null hypothesis is rejected and the alternative hypothesis is accepted. It means that there 

exists a relationship between the election and stock market returns in Bangladesh. 

The study tested the stock returns and found that in every election time period, the stock prices 

have negative shift before the election while these have a direct opposite shift right after the 

election. The most election cases and the overall averages of the stock returns showed that the 

null hypothesis should be rejected. It has been assured with proper justification of charts and 

interpretations in the findings and interpretations. So, it can be summed into following key 

understanding and findings:  

 In case of index returns represented overall market scenario, the impacts of election on 

stock market is not as strong as we see in the case of the abnormal returns generated from 

chosen twenty stocks. 

 The reason behind this sloth sensitivity is that there exists lower categories of stocks in 

the market which have the tendency to move directly to the opposite to the market trend, 

thus causing an offsetting impact and leading to make the means loosely different. 

 In Bangladesh, the general election has negative consequences before the election and a 

positive consequence after the election on the stock returns. 

 The stock market confidence of the common investors is pretty low as they have a 

common tendency to sell off the securities in the fear of any political crisis or stock 

market mishaps. 

Thus, it can be concluded from overall analysis that the null hypothesis is rejected and alternative 

hypothesis indicate that there exists a relation between general election and stock returns in 

Bangladesh.  

 

CONCLUSION 

The stock market of Bangladesh is a pre-emerging market considered by most of the economists. 

It has been developing for many years in a fluctuating way, which sometimes creates risk and 

opportunities for some of the intermediaries who understand the functions of stock market in a 

better way. To identify the impact of general elections on stock market performance in 

Bangladesh, the study has been conducted by considering six national elections held between 

1991 and 2018. This is an event study based research and the stock returns of previous 15 days 

and after 15 days of each election have been taken into analysis to gauge the impact of the 

election effect on the returns. The statistical analyses of the study including descriptive statistics, 

t-tests, and F-tests found that the general election strongly influences both the abnormal returns 



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representing the motive of general investors and index returns representing whole market 

scenario. The stock selection and industry selection criteria as a measurement of abnormal 

returns for the investment motive of general investors were made in such a way that made the 

stocks and industries to represent the stock market of Bangladesh from 1991 to 2018. The study 

has found some very interesting findings. To avoid any expectation loss, the investors should 

follow the trend and invest in stocks that are less susceptible to the election. The trend that has 

been observed in the study that the major stock prices or broad index tends to fall sharply before 

the election and goes up after the election. So, proper judgement should be made to take 

investment decision during this time.  

 

RECOMMENDATIONS 

For Policymakers  

The government and respected authorities regarding monetary and fiscal policies should 

incorporate some valuable issues in their actions. The market should be under proper 

surveillance all around the year and the speculating firms and stocks should be controlled under 

special policies by Bangladesh Securities and Exchange Commission. The speculative firms 

should be properly selected and updated time to time as per their performances so that the people 

become cautious of their trading and actions at the time of election. The limitation of fluctuation 

of the stock prices for any particular listed companies should be properly defined. The violation 

of fluctuating limit should be chastised by the authority.  

 

For Common Investors and Financial Market Participants 

There has been existence of some unnecessary and poor stocks in the stock market which creates 

imbalance in the stock market movements and expectations. The situation aggravates when this 

stocks go out of the market by leaving the investors bare handed during the apprehensive days 

election  So, these poor and volatile stocks should not be let to be invested in the stock market of 

Bangladesh beyond a certain limit during election.  

The analysis of each individual election indicates that the stock prices of the market lead 

to go down before election and go up after election. Thus the common investors should not get 

panicked for selling the stocks right before the election time without any jurisdiction. They 

should wait and let the market recover after the election. It has been noticed from the common 

cases under the study that the recovery that takes place after the election is much higher than it 

was before the election. So, a holding strategy will surely benefit the common investors and 

financial market participants.  

The election effect on Bangladesh’s stock market should be added in literacy programs 

in national levels and higher secondary levels for educating the common investors about the 

stock market movements regarding parliamentary election days. The common investors should 

create such a diversified portfolio that will offset the probability of loss during elections. 

Thus, the following of these recommendations can be of some improvement against the volatility 

of the stock price before and after the election and thus, lead to a stable stock market in 

Bangladesh.  

 

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ACKNOWLEDGEMENTS 

The authors express their gratitude to Nausheen Rahman, Professor, Department of Finance, 

University of Dhaka and Md. Sajib Hossain CFA, Assistant Professor, Department of Finance, 

University of Dhaka for their expert advice and encouragement throughout the research.  

 

APPENDICES 

Appendix A: List of Abnormal Returns and Index Returns 

 
Day Abnormal Returns Index Returns 

1991 1996a 1996b 2008 2014 2018 1991 1996a 1996b 2008 2014 2018 

-15 -0.075 0.313 -0.367 0.413 -0.388 1.593 0.000 -0.012 -0.003 -0.039 0.000 0.000 

-14 -0.174 -0.103 -0.483 -0.626 -0.151 -0.110 0.001 0.001 0.006 0.002 0.001 0.001 

-13 -0.056 -0.559 0.065 -0.914 0.068 -0.019 0.000 0.019 -0.002 0.020 -0.008 -0.004 

-12 -0.376 0.165 0.096 -0.226 0.127 -0.029 0.000 -0.002 -0.003 -0.002 -0.004 -0.004 



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-11 -0.011 0.404 0.707 -0.190 0.068 -0.038 -0.001 0.000 -0.015 0.011 -0.002 0.001 

-10 -0.162 -0.226 0.115 0.276 0.061 -0.092 0.002 0.001 -0.006 0.002 -0.007 -0.003 

-9 -0.041 -0.076 0.601 -0.018 -0.006 -0.296 -0.002 0.000 0.002 -0.003 0.001 0.002 

-8 -0.147 0.139 -0.250 -0.067 -0.343 -0.126 -0.001 -0.003 0.010 -0.012 0.010 0.001 

-7 -0.139 0.042 -0.279 0.007 -0.076 -0.103 0.000 -0.005 0.011 -0.011 -0.006 0.000 

-6 -0.025 0.012 -0.084 -0.202 0.015 -0.097 0.000 -0.004 0.000 0.016 -0.009 0.002 

-5 -0.303 -0.014 -0.291 -0.467 0.074 -0.304 0.003 -0.003 0.007 0.030 -0.007 -0.002 

-4 -0.130 -0.248 -0.229 0.427 0.060 0.006 -0.001 0.005 0.009 -0.002 0.002 -0.003 

-3 -0.116 -0.156 -0.250 -0.588 -0.428 0.041 0.000 0.007 0.009 0.006 0.014 -0.003 

-2 -0.154 -0.197 -0.001 -0.131 -0.356 -0.165 0.000 0.008 0.001 0.009 0.005 -0.005 

-1 -0.170 -0.125 -0.208 0.091 -0.317 -0.281 0.002 -0.001 0.002 -0.008 0.007 -0.003 

0 - - - - - - - - - - - - 

1 0.325 0.616 0.222 -0.779 0.242 1.849 -0.001 0.001 0.013 0.070 0.002 0.002 

2 0.217 0.208 -0.018 0.211 0.059 -0.128 -0.001 0.007 0.013 0.005 -0.006 0.024 

3 -0.007 0.040 0.377 0.264 0.056 0.119 0.008 0.007 0.003 0.013 0.008 -0.008 

4 0.180 0.736 0.085 0.716 -0.250 -0.011 0.000 0.001 0.005 -0.012 0.014 -0.001 

5 -0.422 0.290 0.595 0.847 0.290 0.144 0.027 0.001 0.005 -0.018 0.004 0.005 

6 0.247 0.503 0.081 0.251 0.124 -0.009 0.000 0.001 0.032 0.001 0.007 0.004 

7 0.075 0.375 0.154 0.436 0.220 0.122 0.002 -0.006 0.007 -0.012 0.004 0.000 

8 0.221 0.921 0.303 0.026 -0.126 0.079 -0.001 0.002 -0.001 -0.004 0.009 0.000 

9 0.152 0.336 1.486 0.088 0.118 0.337 0.002 0.001 -0.014 0.003 0.006 -0.005 

10 0.142 0.394 0.731 0.469 0.000 -0.107 0.000 0.007 -0.016 -0.005 0.010 0.006 

11 0.205 -0.016 0.561 0.268 0.162 -0.226 0.001 0.010 -0.005 -0.006 -0.003 0.011 

12 0.158 -0.116 0.249 0.312 -0.063 0.102 0.002 0.011 0.005 -0.008 0.008 0.013 

13 0.230 0.078 -0.069 0.724 -0.089 -0.105 0.002 0.003 0.005 -0.029 0.012 0.006 

14 0.083 0.425 -0.222 -0.769 -0.075 0.541 0.000 -0.002 0.008 0.038 0.013 0.000 

15 0.326 0.127 0.207 -0.144 -0.026 0.294 0.000 0.005 0.009 0.012 0.012 -0.006 

 

 

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