Who Values Democracy?

110 Pages Posted: 15 Jan 2020 Last revised: 25 Oct 2023

See all articles by Max Miller

Max Miller

Harvard Business School, Finance Unit

Date Written: October 23, 2023


I show democratizations have a large, negative impact on asset valuations driven by a rise in redistribution risk. Across 90 countries over 200 years, risk premia are substantially elevated in democratizations, similar in magnitude to financial crises. Using a shift in Catholic church doctrine in support of democracy, I provide causal evidence that democratizations increase risk premia. Successful democratizations lead to substantial redistribution: the size of the public sector grows, income inequality falls, and the labor share of income rises. A model of asset prices and political regimes in which wealthy asset market participants face redistribution risk in democratizations can quantitatively explain these effects. The model also explains the negligible asset pricing response to autocratizations. Neither an increase in macroeconomic risk nor generic political risk can explain the results.

Keywords: Risk Premia, Democratization, Inequality, Political Institutions, Catholic Church

JEL Classification: G10, G15, G18, N40, P16

Suggested Citation

Miller, Max, Who Values Democracy? (October 23, 2023). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper, Available at SSRN: https://ssrn.com/abstract=3488208 or http://dx.doi.org/10.2139/ssrn.3488208

Max Miller (Contact Author)

Harvard Business School, Finance Unit ( email )

25 Harvard Way
Boston, MA 02163
United States

HOME PAGE: http://www.max-miller.finance

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