|
Archive@NYU >
Stern School of Business >
Finance Working Papers >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27259
|
| Title: | Political Risk and Stock Returns: The Case of Hong Kong |
| Authors: | Kim, Harold Y.
Mei, Jianping |
| Keywords: | jump-diffusion process
volatility
democracy
mostfavored-nation trade status |
| Issue Date: | 6-Dec-1994 |
| Series/Report no.: | FIN-94-039 |
| Abstract: | Little work has been done to characterize the empirical effects of
political events on financial markets. In this paper we attempt to
measure the impact of political risk on asset prices, focusing on the
Hong Kong equity market. Hong Kong serves as the ideal case study, for
two reasons: the political situation is fluid, unpredictable, and
characterized by the occurrence of definitive events, and the market
movements are volatile, partially reflecting the political event risk.
We focus on the 1989-1993 period, during which political issues such as
the question of Hong Kong’s democracy after 1997, China’s
most-favored-nation trade status, and China’s human rights
development and political reform movement have all contributed to Hong
Kong’s stock price movements. Modeling market volatility using a
jump-diffusion process finds that the volatility of the benchmark Hang
Seng Index is driven by a highly persistent component, punctuated by
large jumps which are highly related to political events. These results
suggest that the Hong Kong market is affected by both economic and
political factors which impact future profitability and investor confidence. |
| URI: | http://hdl.handle.net/2451/27259 |
| Appears in Collections: | Finance Working Papers
|
All items in Faculty Digital Archive are protected by copyright, with all rights reserved.
|
