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http://hdl.handle.net/2451/27062
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| Title: | Political Risk, Financial Crisis, and Market Volatility |
| Authors: | Mei, Jianping (J.P.) |
| Keywords: | Political Elections
Currency Devaluation
Market Contagion |
| Issue Date: | Aug-1999 |
| Series/Report no.: | FIN-99-049 |
| Abstract: | This paper examines the impact of political uncertainty on the recent
financial crises in emerging markets. By examining political election
cycles, we find that eight out of nine of the recent financial crises
happened during periods of political election and transition. Using a
combination of probit and switching regression analysis, we find that
there is a significant relationship between political election and
financial crisis after controlling for differences in economic and
financial conditions. We observe increased market volatility during
political election and transition periods. Moreover, we have some
evidence that political risk is more important in explaining financial
crisis than market contagion. Our results suggest that political
uncertainty could be a major contributing factor to financial crisis.
Thus, politics does matter in emerging markets. Since the odds of
financial crisis tend to be much larger during the political election
periods, institutional investors should take that into account when
making emerging market investment during those time periods. |
| URI: | http://hdl.handle.net/2451/27062 |
| Appears in Collections: | Finance Working Papers
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