Political Beta

Review of Finance, Forthcoming

67 Pages Posted: 10 Mar 2020 Last revised: 14 Mar 2022

See all articles by Raymond J. Fisman

Raymond J. Fisman

National Bureau of Economic Research (NBER); Boston University

April M. Knill

Florida State University College of Business; Florida State University - College of Law

Sergey Mityakov

Florida State University - Department of Finance

Margarita Portnykh

Carnegie Mellon University

Date Written: March 6, 2020

Abstract

Using a portfolio theory framework, we introduce the concept of political beta to model firm-level export diversification in response to global political risk. Our model predicts that firms are less responsive to changes in political relations with lower beta countries – those that contribute less to the firm’s total political risk. We document patterns consistent with our model using disaggregated Russian firm-by-destination-country data during 2001-2011: Trade is positively correlated with political relations, though the effect is far weaker for trading partners whose political relations with Russia are relatively uncorrelated with those of other partners in a firm’s export portfolio.

Keywords: Political risk, Capital Asset Pricing Model, Asset Pricing Theory, Portfolio Theory, Exports, Diversification, Beta

JEL Classification: F11, F14, F23, F51, G11, G12, G15, G32

Suggested Citation

Fisman, Raymond and Knill, April M. and Mityakov, Sergey and Portnykh, Margarita, Political Beta (March 6, 2020). Review of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3550116 or http://dx.doi.org/10.2139/ssrn.3550116

Raymond Fisman

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

April M. Knill (Contact Author)

Florida State University College of Business ( email )

Tallahassee, FL 32306-1042
United States
(850) 644-2047 (Phone)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States

Sergey Mityakov

Florida State University - Department of Finance ( email )

Tallahassee, FL 32306-1042
United States

Margarita Portnykh

Carnegie Mellon University ( email )

Pittsburgh, PA 15213-3890
United States

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