The Impact of Expropriations on the Stock Prices of the Parent Companies: Sell on the Rumor, Buy on the News?

Abstract

We measure the impact of warnings of expropriation and of forced divestments of private property on the stock prices of the parent company. We use a unique database of 116 events in 12 countries from 2005 to 2013. Our results show significant negative effects on the stock prices of different kinds of warnings; the largest effect is when the warning takes the form of a transitory permit revocation. In the case of forced divestments, we find a significant negative impact when there is a permanent revocation of a permit. However, nationalizations seem to generate a positive market reaction.

Keywords: Expropriation risk, Nationalization, Event study, Stock Market

JEL Classification: G14, H13