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International political risk and government bond pricing

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Listed:
  • Huang, Tao
  • Wu, Fei
  • Yu, Jing
  • Zhang, Bohui

Abstract

This paper investigates the impact of international political risk on government bond yields in 34 debtor countries using a comprehensive database of 109 international political crises from 1988 through 2007. After employing the total number of international political crises as a proxy for political risk and controlling for country-specific economic conditions, we establish a positive and significant link between international political risk and government bond yields. This is consistent with global bond investors demanding higher returns at times of high political uncertainty. In addition, we show that international political risk has a reduced adverse effect on bond prices when the debtor country has a stable political system and strong investor protection.

Suggested Citation

  • Huang, Tao & Wu, Fei & Yu, Jing & Zhang, Bohui, 2015. "International political risk and government bond pricing," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 393-405.
    • Handle: RePEc:eee:jbfina:v:55:y:2015:i:c:p:393-405
    DOI: 10.1016/j.jbankfin.2014.08.003
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    More about this item

    Keywords

    Political risk; Government bond; Investor protection;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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