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Global political ties and the global financial cycle

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  • Ambrocio, Gene
  • Hasan, Iftekhar
  • Li, Xiang

Abstract

We study the implications of forging stronger political ties with the US on the sensitivities of stock returns around the world to a global common factor - the global financial cycle. Using voting patterns at the United Nations as a measure of political ties with the US along with various measures of the global financial cycle, we document evidence indicating that stronger political ties with the US amplify the sensitivities of stock returns in developing countries to the global financial cycle. We explore several channels and find that a deepening of financial linkages along with a reduction in information asymmetries and an amplification of sentiment are potentially important factors behind this result.

Suggested Citation

  • Ambrocio, Gene & Hasan, Iftekhar & Li, Xiang, 2024. "Global political ties and the global financial cycle," Bank of Finland Research Discussion Papers 1/2024, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:281065
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    More about this item

    Keywords

    Political Ties; Global Financial Cycle; International Spillovers; Stock returns;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F30 - International Economics - - International Finance - - - General
    • 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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