Political Risk in Emerging and Developed Markets

FINANCIAL ANALYSTS JOURNAL, May/June 1996

Posted: 6 Nov 1996

See all articles by Robin Diamonte

Robin Diamonte

GTE Investment Management

John M. Liew

AQR Capital Management, LLC

Ross L. Stevens

Stone Ridge; New York Digital Investment Group

Multiple version iconThere are 2 versions of this paper

Abstract

Using analysts' estimates of political risk, we show that political risk represents a more important determinant of stock returns in emerging than developed markets. Average returns in emerging markets experiencing decreased political risk exceed those of emerging markets experiencing increased political risk by approximately 11% per quarter. In contrast, the difference is only 2.5% per quarter for developed markets. Further, the difference between the impact of political risk in emerging and developed markets is statistically significant. We also document a global convergence in political risk. Over the last 10 years, political risk has decreased in emerging markets and increased in developed markets. If this trend continues, the differential impact of political risk in emerging vs. developed markets may narrow.

JEL Classification: G15

Suggested Citation

Diamonte, Robin and Liew, John M. and Stevens, Ross L., Political Risk in Emerging and Developed Markets. FINANCIAL ANALYSTS JOURNAL, May/June 1996, Available at SSRN: https://ssrn.com/abstract=7883

Robin Diamonte

GTE Investment Management ( email )

John M. Liew

AQR Capital Management, LLC ( email )

2 Greenwich Plaza
3rd floor
Greenwich, CT 06830
United States
(203) 742-3604 (Phone)
(203) 742-3104 (Fax)

HOME PAGE: http://www.aqr.com

Ross L. Stevens (Contact Author)

Stone Ridge ( email )

New York, NY
United States

New York Digital Investment Group ( email )

New York, NY
United States

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