Who Values Democracy?

118 Pages Posted: 15 Jan 2020 Last revised: 6 Feb 2024

See all articles by Max Miller

Max Miller

Harvard Business School, Finance Unit

Date Written: February 3, 2024


This paper tests the conventional view that redistribution is central to the democratization process using data from stock markets. Consistent with this view, 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. A shift in Catholic church doctrine in support of democracy provides 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. An extended version of the canonical redistribution-based model of democratization that includes asset prices 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? (February 3, 2024). 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 )

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Boston, MA 02163
United States

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

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