Effect of the Political Regime on Asset Returns in Emerging Markets: An Empirical Investigation

South Asian Journal of Macroeconomics and Public Finance, 2012, 1(1), 135-156

29 Pages Posted: 25 Jan 2013

See all articles by Nabamita Dutta

Nabamita Dutta

University of Wisconsin, La Crosse

Date Written: 2012

Abstract

The paper explores the role of the political regime on asset returns in an International Capital Asset Pricing Model (CAPM) framework based on a sample of 17 emerging countries. The results reveal that the political regime has substantial impact on average stock returns. Firms in autocratic regimes have higher average returns that exceed the required returns. This is consistent with the fact that autocratic institutions have compensations for greater chances of bankruptcy, political instability and nationalization of assets. Results are robust to an alternative model to the standard CAPM risk model as well as to an unbalanced sample of countries.

Keywords: Asset Pricing, Political Institutions, Emerging Economies, Investment

JEL Classification: F37, G11, F50, G15

Suggested Citation

Dutta, Nabamita, Effect of the Political Regime on Asset Returns in Emerging Markets: An Empirical Investigation (2012). South Asian Journal of Macroeconomics and Public Finance, 2012, 1(1), 135-156. Available at SSRN: https://ssrn.com/abstract=2206591

Nabamita Dutta (Contact Author)

University of Wisconsin, La Crosse ( email )

Dept. of Economics, 1725 State Street
La Crosse, WI 54601
United States
6087855294 (Phone)

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