Political Uncertainty in Developed and Emerging Markets

22 Pages Posted: 20 Aug 2015

See all articles by Muhammad Tahir Suleman

Muhammad Tahir Suleman

University of Otago - Department of Accountancy and Finance

Toby C. Daglish

Victoria University of Wellington - Te Herenga Waka - School of Economics & Finance

Date Written: August 20, 2015

Abstract

Following Pástor and Veronesi (2012, 2013), we test for a relationship between political uncertainty and financial market risk. We extended Pástor and Veronesi's work by considering a panel of international markets, including emerging markets, which may face greater political uncertainty. Our results are less clear-cut than the original (USA) results, finding that while volatility is impacted by political uncertainty, the same can not be said for value-weighted average pairwise correlations. Finally, we disaggregated our panel and examine the countries individually. The results here are heterogeneous while some countries support the policy to market risk transmission hypothesis, others may do not.

Keywords: Political uncertainty, volatility, correlation, economic conditions.

JEL Classification: G12, G15, G18

Suggested Citation

Suleman, Muhammad Tahir and Daglish, Toby C., Political Uncertainty in Developed and Emerging Markets (August 20, 2015). Available at SSRN: https://ssrn.com/abstract=2647888

Muhammad Tahir Suleman (Contact Author)

University of Otago - Department of Accountancy and Finance ( email )

PO Box 56
Dunedin, 9054
New Zealand

Toby C. Daglish

Victoria University of Wellington - Te Herenga Waka - School of Economics & Finance ( email )

P.O. Box 600
Wellington 6140
New Zealand

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