Global Political Uncertainty and Asset Prices

Review of Financial Studies, Vol. 33, No. 4, 1737–1780, 2020

86 Pages Posted: 30 Aug 2014 Last revised: 23 Jun 2020

See all articles by Jonathan Brogaard

Jonathan Brogaard

University of Utah - David Eccles School of Business

Lili Dai

University of New South Wales (UNSW)

Phong T. H. Ngo

Australian National University (ANU)

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen

Date Written: August 9, 2019

Abstract

We show that global political uncertainty, measured by the U.S. election cycle, on average, leads to a fall in equity returns in fifty non-U.S. countries. At the same time, 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 increases investors’ aggregate risk aversion, leading to a flight to safety.

Keywords: Political uncertainty, asset prices, risk-aversion, flight-to-safety, 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 9, 2019). Review of Financial Studies, Vol. 33, No. 4, 1737–1780, 2020, 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) ( email )

Kensington
High St
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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