The previous chapters show that parliamentary political events affect market behavior. Where the outcome of those events is less predictable, market returns tend to be lower than in situations where the political result is anticipated. But the previous tests do not tap into the process of political events. Parties posture for influence; legislators make proposals and counter-proposals. The media covers politics closely, reporting on how parties are performing, what policies are on the table, and what the likely outcome will be. The information contained in these news reports conditions the expectations of market actors. We argue that the market impact of political news during these processes will vary according to the prior expectations of market actors about the likely outcome. If news items confirm the beliefs of economic actors, this information will have little effect on market behavior. In situations where the eventual outcome is less predictable, however, we anticipate that these news items will affect market performance as economic actors update their expectations based on the new information. In this chapter and the next two, we examine case studies of political events to investigate this argument, generating data that not only captures the exact timing of the arrival of information but also accounts for the prior beliefs of market actors.

We first analyze two specific coalition formations: Austria after the October 1999 elections and New Zealand after the October 1996 elections. Both negotiations proved contentious and lengthy.