A Political Capital Asset Pricing Model

74 Pages Posted: 18 Mar 2019 Last revised: 12 Aug 2019

See all articles by Giovanni Pagliardi

Giovanni Pagliardi

BI Norwegian Business School

Patrice Poncet

ESSEC Business School; Universite Paris I Pantheon Sorbonne

Stavros A. Zenios

University of Cyprus; Bruegel; University of Pennsylvania - Wharton Financial Institutions Center

Date Written: March 12, 2019

Abstract

We construct a bivariate factor of political stability and economic policy confidence and show that it commands a significant premium of up to 15% per annum, in the global, developed, and emerging markets, robust to ICAPM, Fama-French five-factor model, Carhart, and ICAPM Redux. We propose an international capital asset pricing model incorporating the political factor, and test global and local estimations in developed and emerging economies. The model explains up to 77% of cross-sectional returns, has good predictive power, in several tests it performs better than the benchmark models in pricing equity indices and explains up to an incremental 25% of cross-sectional returns and is robust out of sample.

Keywords: asset pricing, political uncertainty, economic policy uncertainty, international stock markets, emerging markets, frontier markets

JEL Classification: E62, F30, G12, G15, G18

Suggested Citation

Pagliardi, Giovanni and Poncet, Patrice and Zenios, Stavros A., A Political Capital Asset Pricing Model (March 12, 2019). Available at SSRN: https://ssrn.com/abstract=3351403 or http://dx.doi.org/10.2139/ssrn.3351403

Giovanni Pagliardi

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Patrice Poncet

ESSEC Business School ( email )

Avenue Bernard Hirsch
BP 105 Cergy Cedex, 95021
France
33 1 3443 3000 (Phone)
33 1 3443 3001 (Fax)

Universite Paris I Pantheon Sorbonne ( email )

Finance Department, UFR 06
17 rue de la Sorbonne
75005 Paris
France
33 1 40 46 2783 (Phone)
33 1 40 46 33 66 (Fax)

Stavros A. Zenios (Contact Author)

University of Cyprus ( email )

75 Kallipoleos Street
P.O. Box 20537
Nicosia CY-1678
Cyprus
+357 2 893605 (Phone)

HOME PAGE: http://https://www.researchgate.net/profile/Stavros_Zenios

Bruegel ( email )

Rue de la Charité 33
B-1210 Brussels Belgium, 1210
Belgium

University of Pennsylvania - Wharton Financial Institutions Center ( email )

3733 Spruce Street
Philadelphia, PA 19104-6374
United States

HOME PAGE: http://zenios.wordpress.com

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
215
Abstract Views
1,055
rank
215,224
PlumX Metrics