Israeli Stock Market Sees Volatility Surge After Elections
Translated & summarized from Ice by baba
An analysis of Israeli elections from 2003-2022 shows the stock market initially reacts positively, then declines in the first week, before recovering within a month. Volatility significantly increases by up to 45% in the weeks following elections due to political uncertainty. Investors are advised to align strategies with their risk tolerance and long-term goals, as fundamental economic factors are expected to drive future market performance.
The story in 6 lines · by baba
- Israeli stock indices show initial gains, followed by first-week losses, and a month-long recovery after elections.
- Volatility in the stock market surges by up to 45% in the weeks following Israeli elections.
- The TA-35 index averages a 0.58% gain on the first trading day post-election.
- Within a month, the TA-35 index shows an average cumulative gain of 1.72% after elections.
- Increased volatility is linked to uncertainty surrounding government formation and budget approval.
- Long-term investors are advised to maintain strategies despite short-term election-related market swings.
The Tel Aviv Stock Exchange's research unit analyzed the performance of leading stock indices following ten Israeli elections between 2003 and 2022, ahead of the upcoming 26th Knesset elections on October 27, 2026. The findings indicate a positive average response on the first trading day after elections, followed by declines within the first week, and a subsequent recovery later in the month. However, the most significant observation is a sharp increase in volatility in the weeks following elections.
On the first trading day after an election, the TA-35 index typically rises by an average of 0.58%, and the TA-125 index by 0.52%. This initial optimism, however, gives way to declines, with a cumulative negative return of 0.89% for the TA-35 and 0.67% for the TA-125 by the end of the first week. Within a month, the trend reverses, with the TA-35 showing an average cumulative return of 1.72% and the TA-125 gaining 1.67%, suggesting that early week declines do not necessarily predict a sustained negative trend.
The study highlights a substantial rise in volatility, with fluctuations in the leading indices increasing by 31% to 45% in the first three weeks post-election compared to a typical week. This heightened volatility, which moderates later in the month, is attributed to the prolonged uncertainty surrounding government formation and its ability to pass an annual budget, even after election results are known.
For investors, this increased short-term volatility underscores the importance of aligning investment strategies with their investment horizon and risk tolerance. While short-term risk management tools like options and derivatives can be employed, long-term investors may not need to alter their strategies due to temporary election-related fluctuations. The study cautions against market timing based on political developments or short-term volatility, as it can lead to missed opportunities for gains. Ultimately, long-term stock market performance is driven by fundamental economic factors such as growth, interest rates, inflation, and corporate profits, which remain positive for Israel.
Israel benefits from relatively low interest rates and inflation, a tight labor market, and low unemployment. Growth forecasts also position Israel among developed economies with the highest expected growth rates. These positive fundamentals are expected to support the local stock market's performance in the coming years.
