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The impact of political risk on the volatility of stock returns: the case of Canada

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  • Marie-Claude Beaulieu

    (Faculté des sciences de l'administration, Université Laval, Québec, Canada)

  • Jean-Claude Cosset

    (Service de l'enseignement des affaires internationales, HEC Montréal, Canada)

  • Naceur Essaddam

    (Department of Business Administration, Royal Military College of Canada, Canada)

Abstract

This paper examines the impact of political risk in Canada on the volatility of stock returns. Our results suggest that political news associated with the possible separation of Quebec from Canada plays an important role in the volatility of stock returns. However, our evidence indicates that investors do not require a risk premium, supporting the idea that political risk is diversifiable. We also show that stock return volatility varies with the degree of a firm's exposure to political risk, namely, the structure of assets and the extent of foreign involvement, which indicates that firms most exposed to political risk bear the burden of diversification. Journal of International Business Studies (2005) 36, 701–718. doi:10.1057/palgrave.jibs.8400160

Suggested Citation

  • Marie-Claude Beaulieu & Jean-Claude Cosset & Naceur Essaddam, 2005. "The impact of political risk on the volatility of stock returns: the case of Canada," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 36(6), pages 701-718, November.
    • Handle: RePEc:pal:jintbs:v:36:y:2005:i:6:p:701-718
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