Political Risk, Financial Crisis, and Market Volatility

Posted: 20 Apr 1999

See all articles by Jianping Mei

Jianping Mei

New York University (NYU) - Department of Finance

Date Written: February 28, 1999

Abstract

This paper examines the impact of political uncertainty on the recent financial crises in emerging markets. By examing political election cycles, we find that eight out of nine of the recent financial crises happened during periods of political election and transition. Using a combination of probit and switching regression analysis, we find that there is a significant relationship between political uncertainty and financial crisis after controlling for differences in economic and financial conditions. We observe increased market volatility during political election and transition periods. Moreover, we have some evidence that political risk is more important in explaining financial crisis than market contagion. Our results suggest that political uncertainty could be a major contributing factor to financial crisis. Thus, politics does matter in emerging markets.

JEL Classification: G14, G15, C22

Suggested Citation

Mei, Jianping, Political Risk, Financial Crisis, and Market Volatility (February 28, 1999). Available at SSRN: https://ssrn.com/abstract=155588

Jianping Mei (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0354 (Phone)
212-995-4221 (Fax)

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