Scuttle for Shelter: Investor Flight-to-Safety and Political Uncertainty during the Spanish Second Republic
39 Pages Posted: 13 Oct 2020 Last revised: 23 Sep 2021
Date Written: September 20, 2021
The Spanish Second Republic was a unique experiment of democratization in interwar Spain, which was characterized by extreme levels of political uncertainty. In response to this uncertainty, we find that investors sold stocks in favor of government bonds. In fact, political uncertainty had a negative effect on the aggregate stock market index, a positive effect on stock market volatility, and significant differences in the cross-section of stock return, consistent with their exposure to the uncertainty. This suggests that Spanish investors did not seem to perceive a soviet-style social revolution as a credible threat.
Keywords: Political uncertainty, Regime switches, Spain, Great Depression
JEL Classification: N2, N23, G11
Suggested Citation: Suggested Citation