Journal of Money, Investment and Banking ISSN 1450-288X Issue 3 (2008) © EuroJournals Publishing, Inc. 2008 http://www.eurojournals.com/finance.htm General Election, Political Change and Market Efficiency: Long- and Short-Term Perspective in Developed Stock Market Yi-Hsien Wang Department of Finance, Yuanpei University, No. 306 Yuanpei St. Hsin Chu 30015, Taiwan E-mail: holland@mail2000.com.tw Mei-Yu Lee Department of Finance, Yuanpei University, No. 306 Yuanpei St. Hsin Chu 30015, Taiwan, ROC Che-Yang Lin Department of Finance, Yuanpei University, No. 306 Yuanpei St. Hsin Chu 30015, Taiwan Abstract This paper utilized event study and panel data to examine the effects of general election and political change in developed stock market. The analytical results demonstrate that there is inverse information during the campaign. Furthermore, the results provide evidences that political change was originally intended as an incumbent party impetus to create opportunities for progress. This has caused great political party distress, creating political change with an inverse stock market relationship in developed countries. Keywords: Event Study, Panel Data, GARCH, General Election, Market Efficiency JEL Classification Codes: C23, G14 1. Introduction Recent globalization with rapid global economy integration has caused individual stock market growth and compaction. The stock market is a national economy barometer in that it speculates on the future of the economy. Thus political information easily spreads into the stock market with consequent mass media development. It generally responds to new political information that may affect the national economy future. Hence, whether or not political change influences the stock market continues to be an important analysis for scholars and market participators (Chan and Wei, 1996; Bittlingmayer, 1998; Kim and Mei, 2001; Perotti and Oijen, 2001; Hassan et al., 2003). Exploring complicated relationship between stock market and political behavior using statistical methods is one of most exciting issues for academicians and investors. Politics and that economy are inextricably linked; that is, they have significant influence on each other, and cannot be separated (Chandiok, 1996; Bratsiotis, 2000; Cover, 2000; Easaw and Garratt, 2000; Harms, 2002; Chiu et al., 2005).