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The impact of political risk on return, volatility and discontinuity: Evidence from the international stock and foreign exchange markets

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  • Vortelinos, Dimitrios I.
  • Saha, Shrabani

Abstract

The paper examines the impact of political risk on stock and foreign exchange markets in a comprehensive sample of sixty-six countries and twenty political risk indicators mostly covering the financial crisis and recovery periods from May 2001 to April 2014. The impact is assessed on return, volatility and jumps series of monthly frequency. Evidence reveals that Europe is mostly at higher risks generated from economic crisis; whereas, political risks explain the high volatility and discontinuity in international stock and foreign exchange markets in other regions.

Suggested Citation

  • Vortelinos, Dimitrios I. & Saha, Shrabani, 2016. "The impact of political risk on return, volatility and discontinuity: Evidence from the international stock and foreign exchange markets," Finance Research Letters, Elsevier, vol. 17(C), pages 222-226.
    • Handle: RePEc:eee:finlet:v:17:y:2016:i:c:p:222-226
    DOI: 10.1016/j.frl.2016.03.017
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    Cited by:

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    2. Liow, Kim Hiang & Song, Jeongseop, 2020. "Dynamic interdependence of ASEAN5 with G5 stock markets," Emerging Markets Review, Elsevier, vol. 45(C).
    3. Ameet Kumar & Khalid Ahmed & Mujeeb‐u‐Rehman Bhayo & Muhammad Ramzan Kalhoro, 2023. "Banking performance and institutional quality: Evidence from dynamic panel data analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 4717-4737, October.
    4. Ashraf Helmy & Osama Wagdi, 2016. "Political Risks and Their Economic Effects: Evidence from Egypt," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(7), pages 1-94, July.
    5. Adam Zaremba, 2019. "The Cross Section of Country Equity Returns: A Review of Empirical Literature," JRFM, MDPI, vol. 12(4), pages 1-26, October.
    6. Gkillas, Konstantinos & Boako, Gideon & Vortelinos, Dimitrios & Vasiliadis, Lavrentios, 2020. "Non-parametric quantile dependencies between volatility discontinuities and political risk," Finance Research Letters, Elsevier, vol. 32(C).
    7. Lee A. Smales, 2017. "“Brexit”: A Case Study in the Relationship Between Political and Financial Market Uncertainty," International Review of Finance, International Review of Finance Ltd., vol. 17(3), pages 451-459, September.
    8. Zhou, Mei-Jing & Huang, Jian-Bai & Chen, Jin-Yu, 2022. "Time and frequency spillovers between political risk and the stock returns of China's rare earths," Resources Policy, Elsevier, vol. 75(C).

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    More about this item

    Keywords

    Political risk; Volatility; Jumps;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls

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