Global Political Uncertainty and Asset Prices

50 Pages Posted: 30 Aug 2014 Last revised: 24 Aug 2018

See all articles by Jonathan Brogaard

Jonathan Brogaard

University of Utah - David Eccles School of Business

Lili Dai

University of New South Wales (UNSW) - School of Accounting

Phong T. H. Ngo

Australian National University (ANU)

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen

Date Written: August 21, 2018

Abstract

We show that global political uncertainty, measured by the U.S. election cycle, leads to a fall in equity market returns in 50 non-U.S. countries. At the same time, equity market volatilities rise, local currencies depreciate, and sovereign bond returns increase. The effect of global political uncertainty on equity prices increases with the level of uncertainty in U.S. election outcomes and a country’s equity market exposure to foreign investors, but does not vary with the country’s international trade exposure. These findings suggest that global political uncertainty causes an increase in investors’ aggregate risk aversion, leading to a flight to safer assets.

Keywords: Political uncertainty, asset prices, integration, international finance

JEL Classification: F30, F36, G12, G15, G18

Suggested Citation

Brogaard, Jonathan and Dai, Lili and Ngo, Phong T. H. and Zhang, Bohui, Global Political Uncertainty and Asset Prices (August 21, 2018). Available at SSRN: https://ssrn.com/abstract=2488820 or http://dx.doi.org/10.2139/ssrn.2488820

Jonathan Brogaard

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

HOME PAGE: http://www.jonathanbrogaard.com

Lili Dai

University of New South Wales (UNSW) - School of Accounting ( email )

Room 3094
Quadrangle Building, UNSW Sydney
Sydney, NSW 2052
Australia

HOME PAGE: http://sites.google.com/site/ldaiprofile

Phong T. H. Ngo (Contact Author)

Australian National University (ANU) ( email )

RSFAS, College of Business and Economics
Australian National University
Canberra, Australian Capital Territory 0200
Australia
+61 2 6125 1079 (Phone)

HOME PAGE: http://cbe.anu.edu.au/people/rsfas/phong-ngo/

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen ( email )

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