Israeli Stock Market Performs Better After Elections, Study Finds
Translated & summarized from i24NEWS by baba
A study by the Tel Aviv Stock Exchange found that the Israeli stock market tends to perform strongly in the year following elections, with the TA-125 index yielding an average of 16.4% post-election compared to a long-term average of 11.5%. The research, however, cautions that economic recoveries from prior crises also played a role. The market tends to underperform before elections but outperform afterward, and even indecisive elections do not necessarily lead to prolonged negative market impact.
The story in 6 lines · by baba
- The Israeli stock market tends to perform better in the year after elections, yielding an average of 16.4% return.
- The TA-125 index historically underperforms Wall Street before elections but outperforms in the subsequent year.
- Economic recoveries from crises like the dot-com bubble and COVID-19 also contributed to post-election market gains.
- Fear of political stagnation is priced into the market before elections, mitigating post-election surprises.
- Even elections without a clear outcome do not necessarily lead to prolonged negative market impact.
- The shekel also tends to strengthen in the year following an election cycle.
A new study by the Tel Aviv Stock Exchange's research unit, analyzing ten election cycles since 2003, suggests that the year following an election tends to be strong for the Israeli stock market. The research, conducted by macro economist Nissan Avraham, found that the TA-125 index yielded an average return of approximately 16.4% in the 12 months after elections, compared to a long-term average annual return of about 11.5% over the entire period.
However, the stock exchange cautions against attributing this performance solely to the elections themselves. Some of the examined election periods occurred after significant crises, such as the dot-com bubble burst, the 2008 global financial crisis, and the COVID-19 pandemic. The subsequent economic recoveries likely contributed to the high returns observed post-election.
When comparing the TA-125 to the S&P 500, the Israeli index showed an average return of 16.4% in the year after elections, versus 13.1% for the S&P 500 in shekel terms. Conversely, in the 12 months preceding elections, the TA-125 averaged a 5% return, lagging behind the S&P 500's 10.1% return. This indicates a tendency for the local market to underperform Wall Street before elections, but outperform in the year that follows.
The study also highlighted findings related to elections that did not result in a government being formed. In the three months leading up to indecisive elections, the TA-125 fell by an average of 5.3%, compared to a mere 0.2% drop in periods before decisive elections. A month before elections, the gap was -3.3% versus -0.7%. However, the situation rapidly reversed after election day, with cumulative returns three months later being 4.7% for indecisive elections and 4.1% for those that formed a government.
The research unit's conclusion is that the fear of political stagnation is typically priced into the market before elections. Therefore, even when elections do not yield a clear outcome, it may not come as a surprise to investors afterward. The study also noted that the shekel strengthened by an average of 2.5% in the year after elections, compared to 1.4% in the year prior, suggesting that increased uncertainty about future economic policy before elections might raise risk premiums for foreign investors.
