A Study on Colombo Stock Market Anomalies due to Presidential and General Elections

Abstract

Over the years researchers are studying stock market anomalies to find ways to earn arbitrage profits. And the position of the government is an important factor when investing in stock market. Internationally extensive studies have been carried out to find whether there is a relationship between position of the government and the stock market anomalies. But there are no studies available for the Colombo Stock Exchange (CSE). Using daily market indices and election information from 1988 to 2015 this research examines the behavior of the CSE immediately before and after the presidential and general elections in Sri Lanka. Wilcoxon signed rank test and homogeneity tests were used in this analysis. Results show that share prices are continuously increasing before the election and decreasing after the polling date. There were few exceptions due to high political stability and instability in the preelection period. Banks Finance & Insurance, Hotels & travels and Manufacturing are the three sectors dominantly increased in the pre-election period. And Beverage, Food & Tobacco, Construction & Engineering and Stores & Supplies have no anomalies during the election period.