Interest Group Activity and Long-Run Stock Market Performance

46 Pages Posted: 24 Sep 2004

See all articles by Dennis Coates

Dennis Coates

University of Maryland, Baltimore County

Bonnie Wilson

Saint Louis University - Department of Economics

Date Written: September 2004

Abstract

This paper provides evidence that interest group activity is negatively related to both the level and the volatility of returns on a national stock market. These findings are robust to model specifications that include traditional growth regression policy variables as well as political, economic, and financial institutions variables. The estimated magnitude of the relationship between interest group activity and stock market performance is quite striking. In particular, a one percent increase in the number of interest groups in a country is associated with a direct reduction in average annual stock market returns of roughly 2-5%, and a reduction in the volatility of annual stock returns of roughly 6-14%. The findings also indicate that many of the same fundamentals that drive economic growth also explain stock market performance.

Keywords: Special interest groups, institutional sclerosis, stock returns, return volatility

JEL Classification: C21, D72, G15, O16

Suggested Citation

Coates, Dennis and Wilson, Bonnie, Interest Group Activity and Long-Run Stock Market Performance (September 2004). Available at SSRN: https://ssrn.com/abstract=594881 or http://dx.doi.org/10.2139/ssrn.594881

Dennis Coates

University of Maryland, Baltimore County ( email )

1000 Hilltop Circle
Baltimore, MD 21250
United States
410-455-3243 (Phone)
410-455-1054 (Fax)

Bonnie Wilson (Contact Author)

Saint Louis University - Department of Economics ( email )

3674 Lindell Boulevard
Saint Louis, MO 63108
United States

HOME PAGE: http://https://sites.google.com/a/slu.edu/bonnie_wilson/

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