The Value of Institutions for Financial Markets: Evidence from Emerging Markets

Posted: 8 Dec 2008

See all articles by Bernardin Akitoby

Bernardin Akitoby

International Monetary Fund (IMF) - Fiscal Affairs Department

Thomas Stratmann

George Mason University - Buchanan Center Political Economy; George Mason University - Mercatus Center; CESifo (Center for Economic Studies and Ifo Institute)

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Date Written: December 5, 2008

Abstract

This paper investigates the value of political institutions for financial markets, using panel data from emerging market countries. We test the hypothesis that changes in political institutions, such as improvements in democratic rights and increased government accountability, have a direct effect on sovereign interest rate spreads. We find that financial markets value institutions over and above the economic and fiscal outcomes these institutions shape. Democracy and accountability generally lower sovereign spreads, political risk tends to increase them, and financial markets tend to view election years negatively.

Keywords: fiscal policy, sovereign risk, spreads, institutions, emerging markets

JEL Classification: E62, G15, H39, H63

Suggested Citation

Akitoby, Bernardin and Stratmann, Thomas, The Value of Institutions for Financial Markets: Evidence from Emerging Markets (December 5, 2008). Available at SSRN: https://ssrn.com/abstract=1311875

Bernardin Akitoby

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

Thomas Stratmann (Contact Author)

George Mason University - Buchanan Center Political Economy ( email )

4400 University Drive
Fairfax, VA 22030
United States
703-993-2330 (Phone)

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

HOME PAGE: http://www.mercatus.org/scholars/thomas-stratmann

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

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