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The Real-Time Impact of Political Risk on Market Valuations: Evidence from Peru

Author

Listed:
  • Juan Pablo Micozzi

    (Department of Political Science, Instituto Autonomo Tecnologico de Mexico (ITAM), Ciudad de Mexico 01080, Mexico
    These authors contributed equally to this work.)

  • Patricio Navia

    (School of Liberal Studies, New York University, New York, NY 10003, USA
    These authors contributed equally to this work.)

  • Pablo Pinto

    (Hobby School of Public Affairs, University of Houston, Houston, TX 77204, USA
    These authors contributed equally to this work.)

  • Sebastian Saiegh

    (Department of Political Science, University of California San Diego, La Jolla, CA 92037, USA
    These authors contributed equally to this work.)

Abstract

This study examines the impact of political risk on financial markets by leveraging high-frequency (minute-by-minute) price data and precise event timestamps from media outlets’ Twitter feeds during Pedro Castillo’s failed coup attempt in Peru. Unlike previous research that relies on low-frequency data and protracted political changes, our analysis demonstrates that daily closing prices may misleadingly suggest negligible impact. In contrast, high-frequency data reveal that markets promptly and accurately incorporated news of the coup attempt and, in turn, its failure into asset prices. Our analysis shows that breakdowns in democratic governance negatively affect asset prices, while the restoration of the rule of law, in the form Congressional checks on the Executive branch, boosts them. Moreover, our analyses suggest that domestic companies and sectors with less mobile assets are more vulnerable to these political risks. Our findings underscore the crucial role of high-frequency data in accurately capturing how institutions and political risk affects equity markets.

Suggested Citation

  • Juan Pablo Micozzi & Patricio Navia & Pablo Pinto & Sebastian Saiegh, 2024. "The Real-Time Impact of Political Risk on Market Valuations: Evidence from Peru," JRFM, MDPI, vol. 17(7), pages 1-15, July.
  • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:7:p:298-:d:1434544
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    References listed on IDEAS

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    3. Scott R. Baker & Nicholas Bloom & Steven J. Davis & Marco C. Sammon, 2021. "What Triggers Stock Market Jumps?," NBER Working Papers 28687, National Bureau of Economic Research, Inc.
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