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Effect of the Political Regime on Asset Returns in Emerging Markets: An Empirical Investigation

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  • Nabamita Dutta

Abstract

The article explores the role of the political regime on asset returns in an International Capital Asset Pricing Model (CAPM) framework based on a sample of 17 emerging countries. The results reveal that the political regime has substantial impact on average stock returns. Firms in autocratic regimes have higher average returns that exceed the required returns. This is consistent with the fact that autocratic institutions have compensations for greater chances of bankruptcy, political instability and nationalization of assets. Results are robust to an alternative model to the standard CAPM risk model as well as to an unbalanced sample of countries.

Suggested Citation

  • Nabamita Dutta, 2012. "Effect of the Political Regime on Asset Returns in Emerging Markets: An Empirical Investigation," South Asian Journal of Macroeconomics and Public Finance, , vol. 1(1), pages 135-156, June.
    • Handle: RePEc:sae:smppub:v:1:y:2012:i:1:p:135-156
    DOI: 10.1177/227797871200100107
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    More about this item

    Keywords

    Asset pricing; political institutions; emerging economies; investment; F37; G11; F50; G15;
    All these keywords.

    JEL classification:

    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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