Political News and Stock Prices: The Case of Saddam Hussein Contracts

Abstract

This paper studies the association between the market’s expectations of Saddam Hussein’s fall from power, reflected in "Saddam contract" prices, and stock prices, oil prices and exchange rates. During the war, a rise in the probability of Saddam’s fall, which also indicated a speedy end to the war, was positively and significantly associated with stock prices, strengthened the dollar against the Euro, and lowered oil prices. Before the war, a rise in the probability of Saddam’s fall, which may have also indicated the probability of a costly war breaking out, lowered stock prices, which adjustment gradually to this information.