Precarious Politics and Return Volatility

Review of Financial Studies, Forthcoming

49 Pages Posted: 27 Jul 2011

See all articles by Maria Boutchkova

Maria Boutchkova

University of Edinburgh

Art Durnev

University of Iowa - Henry B. Tippie College of Business

Hitesh Doshi

University of Houston - C.T. Bauer College of Business

Alexander Molchanov

Massey University

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Date Written: July 27, 2011

Abstract

We examine how local and global political risks affect industry return volatility. Our central premise is that some industries are more sensitive to political events than others. We find that industries that are more dependent on trade, contract enforcement, and labor exhibit greater return volatility when local political risks are higher. Political uncertainty in countries of trading partners of trade-dependent industries similarly results in greater volatility. Volatility decomposition results indicate that while systematic volatility is associated with domestic political uncertainty, global political risks translate into larger idiosyncratic volatility.

Suggested Citation

Boutchkova, Maria and Durnev, Artyom and Doshi, Hitesh and Molchanov, Alexander, Precarious Politics and Return Volatility (July 27, 2011). Review of Financial Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1896086

Maria Boutchkova

University of Edinburgh ( email )

Business School
29 Buccleuch Place
Edinburgh, EH89JS
United Kingdom

Artyom Durnev (Contact Author)

University of Iowa - Henry B. Tippie College of Business ( email )

Acquisitions
5020 Main Library
Iowa City, IA 52242-1000
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HOME PAGE: http://www.artdurnev.com

Hitesh Doshi

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States

Alexander Molchanov

Massey University ( email )

Auckland
New Zealand

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