Valuing Composite Political Risk: Towards a Market Based Indicator

18 Pages Posted: 23 Oct 2008

See all articles by John L. Simpson

John L. Simpson

Curtin University - Centre for Research in Applied Economics

Date Written: October 15, 2008

Abstract

This paper is motivated by the need to return to a basic political risk indicator and risk valuation model in light of the recent global turbulence in economies and financial markets. A lesson to be learned from the crises of 2008 is that an additional analytical tool utilising country and global stock market indexed data would be useful to provide a broad picture of composite political risk in each country on a daily running basis. It is argued that unsystematic risk is an indicator of country specific factors that relate to political, social, legal and cultural effects. When adjusted for degrees of systemic informational efficiency, this uncomplicated analytical tool could be used, as an adjunct to other indicators, by government and industry risk analysts endeavouring to pre-empt market and political risk problems.

Keywords: Political risk, market model, risks scores, economic and financial risk

JEL Classification: F36

Suggested Citation

Simpson, John L., Valuing Composite Political Risk: Towards a Market Based Indicator (October 15, 2008). Available at SSRN: https://ssrn.com/abstract=1288070 or http://dx.doi.org/10.2139/ssrn.1288070

John L. Simpson (Contact Author)

Curtin University - Centre for Research in Applied Economics ( email )

GPO Box U1987
Perth, Western Australia 6845
Australia

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