There is no predictable, systematic impact from federal elections on Canadian financial markets, according to a report from economists with the Bank of Montreal.

“In theory, the prospect of a change in government and fiscal policy implies a less certain outlook for the economy, which should lead risk-adverse investors to reduce their exposure to Canadian assets ahead of the election, causing financial asset prices to weaken,” the report says. “Post election, prices should partially recover as the uncertainty dissipates.”

The report tests that hypothesis by assessing the behaviour of Canadian financial markets before and after the last six federal elections. It uses statistical analysis to determine whether the performance of the Canadian dollar, bonds and equities in the six-weeks prior to the election was significantly different from the performance in the post-election period. The six-week pre-election period usually covers the election campaign, which normally starts when the Prime Minister announces the date for the election and ends on the day of the election.

The report, “does not find evidence of a systematic and meaningful impact of federal elections on Canadian financial markets. At most, the Canadian dollar may have been affected by two of the last six elections, while stock prices could have been affected by one,” it concludes.

The two cases of pre-election weakness for the stock market occurred ahead of the November 1988 and November 2000 elections. Although, it concludes that, “only the 2000 election is the weakness significant at the 5% level. And in this case, the election may not have been a causal factor, since equities had been trending down sharply after the tech-stock bubble burst in September 2000.”