Relationship Among Political Instability, Stock Market Returns and Stock Market Volatility

Hira Irshad

doi:10.1515/sbe-2017-0023

.blurhash-client-img { display: none !important; }

Relationship Among Political Instability, Stock Market Returns and Stock Market Volatility

Studies in Business and Economics

Volume 12 (2017): Issue 2 (August 2017)

By: Hira Irshad

Open Access

|Oct 2017

Abstract

This study investigated the relationship of political instability with the stock prices. Results of the study indicated the negative relationship of stock prices with political instability. Moreover, results of suggested that instable political system ultimately leads decline in stock prices. Inflation has shown negative relationship with stock prices whereas, industrial production and Exports have positive relationship with stock prices.

References

Alesina A., Ozler S., Roubini N. Swagel P. (1992) “Political Instability and Economic Growth” (September), NBER Working Paper # 4173.10.3386/w4173
Search in Google Scholar Back to article
Alesina A., Roubini N., Cohen G., (1993) “Electoral business cycle in industrial democracies”, 10.1016/0176-2680(93)90027-R
Open DOI Search in Google Scholar Back to article
Almeida H., Ferreira D. (2002) “Democracy and the variability of economic performance: Domestic and international sources of economic activity”, Economics and Politics 14, 225-257.10.1111/1468-0343.00107
Open DOI Search in Google Scholar Back to article
Alt J., Chrystal K., (1983) Political Economics (University of California Press: Berkeley, CA.). Ali, Haji Suleman, Shujahat Haider Hashmi, and Arshad Hassan. "Relationship Between Political Instability and Domestic Private Investment in Pakistan: A Time Series Analysis (1972-2009)." Pakistan Business Review (2013) (2013).
Search in Google Scholar Back to article
Anthony A., (2000) “Social Fractionalization, Political instability and the size of Government”, IMF Working Paper, WP/00/82.10.5089/9781451850437.001
Search in Google Scholar Back to article
Barro R. J., Lee J., (1994) “Sources of Economic Growth”, Carnegie Rochester Conference Series on Public Policy.10.1016/0167-2231(94)90002-7
Search in Google Scholar Back to article
Bashir M., F., Xu C., Zaman K., Akhmat. G., Ikram M., (2013), “Impact of foreign political instability on Chinese exports”, Economic Modeling 33 (2013) 802-80710.1016/j.econmod.2013.06.002
Search in Google Scholar Back to article
Beaulieu M. C, Cosset J. C and Essaddam N. (2005)” The impact of political risk on the volatility of stock returns: the case of Canada” Journal of International Business Studies 36, 701-71810.1057/palgrave.jibs.8400160
Open DOI Search in Google Scholar Back to article
Ben-Habib J., Spiegel M., (1992) “The Role of Human Capital and Political Instability in Economic Development.” Economic Research Report. New York University, C. V. Starr Center for Applied Economics, New York. Processed.
Search in Google Scholar Back to article
Bernhard W., Leblang D., (2006) “Democratic Processes and Financial Markets: Pricing Politics” (Cambridge University Press: Cambridge, U.K.).10.1017/CBO9780511607226
Search in Google Scholar Back to article
Berthelemy J.C., Kauffmann C., Renard L.Wegner L., (2002) “Political Instability, Political Regimes and Economic Performance in African Countries” African Economic Outlook (March).
Search in Google Scholar Back to article
Between Political Instability and Economic Growth in Nepal (1975-2003)” South Asia Network
Search in Google Scholar Back to article
Bittlingmayer G., (1998) “Output, stock volatility, and political uncertainty in a natural experiment: Germany 1880-1940”, Journal of Finance 53, 2243-2256.10.1111/0022-1082.00090
Search in Google Scholar Back to article
Blake L., “Some Relations between Volatility and Serial Correlation in Stock Market Returns”, Journal of Business, LXV 1992, 199-219.10.1086/296565
Search in Google Scholar Back to article
Botero J., Djankov S., La Porta R., Lopez-de-Silanes F., (2004) “The regulation of labor”, Quarterly Journal of Economics 119, 1339-1382.10.1162/0033553042476215
Search in Google Scholar Back to article
Boutchkove. M., Doshi H., Durnev A., (2010), “Precarious Politics and Return Volatility”, The Review of Financial Studies, Volume 25.10.2139/ssrn.1317834
Search in Google Scholar Back to article
Brempong Traynor (1999) “Political Instability, Investment and Economic Growth in Sub-Saharan Africa, Journal of African Economies.
Search in Google Scholar Back to article
Bussie. M., and Mulder. C., (2000) “Political Instability and Economic Vulnerability”, International Journal of Finance and Economic. 5: 309-330 (2000)10.1002/1099-1158(200010)5:4<;309::AID-IJFE136>3.0.CO;2-I
Open DOI Search in Google Scholar Back to article
Bussiere M., Mulder C., (1999) “Political instability and economic vulnerability”, International Monetary Fund Working Paper (WP/99/46).10.5089/9781451846539.001
Search in Google Scholar Back to article
Campos N. F., Karanasos M. G., (2008) “Growth, volatility and political instability: Nonlinear time-series evidence for Argentina, 1896-2000” Economics Letters, 100, pp.135-137.10.1016/j.econlet.2007.12.013
Open DOI Search in Google Scholar Back to article
Campos N. F., Nugent J. B., (1999) “Who is Afraid of Political Instability” University of Southern California, Mimeo.10.2139/ssrn.1539705
Search in Google Scholar Back to article
Camposw N., F., Nugent J., B., (2002) Aggregate Investment and Political Instability an Econometric investigation, Economica (2003) 70, 533-54910.1111/1468-0335.01081
Search in Google Scholar Back to article
Chan Y., Wei, J., (1996) “Political Risk and Stock Price Volatility: The Case of Hong Kong”, Pacific Basin Finance Journal, vol. 4, 259-27510.1016/0927-538X(96)00014-5
Search in Google Scholar Back to article
Clark, E., (1997), “Valuing Political Risk”, Journal of International Money and Finance, 16, No. 3, 477-490.10.1016/S0261-5606(97)00008-9
Open DOI Search in Google Scholar Back to article
Clark. E., Masood O., Tunaru R., (2006). “Political Events Affecting the Pakistan Stock Exchange: An Analysis of the Past and Forecasting the Future” presented QQASS, Special issue conference
Search in Google Scholar Back to article
Cosset J.C., Suret J.M., (1995) “Political Risk and the Benefits of International Portfolio Diversification”, Journal of International Business Studies, 26, 2nd quarter, 301-318.10.1057/palgrave.jibs.8490175
Open DOI Search in Google Scholar Back to article
Cutler, D., Poterba J., Summers L., (1989), ‘What Moves Stock Prices?’,Journal of Portfolio Management, 15, 4-11.10.3905/jpm.1989.409212
Open DOI Search in Google Scholar Back to article
De Haan J., Siermann C., (1996), “Political Instability, Freedom and Economic Growth” Economic Development and Cultural Change, 44 339-5010.1086/452217
Open DOI Search in Google Scholar Back to article
Dimitrious A., Simon P., (2001) “Political Instability and Economic Growth: UK Time Series Evidence”, Scottish Journal of Political Economy (September), Vol.48, No.4, pp.244-249.
Search in Google Scholar Back to article
Dimitrious A., Siriopoulos C., (2000) “The Role of Political Instability in Stock Market Development and Economic Growth: The Case of Greece”, Economic Notes, vol. 29(3), pp. 355-7410.1111/1468-0300.00037
Open DOI Search in Google Scholar Back to article
Durnev A., (2010) “The Real Effects of Political Uncertainty: Elections and Investment 10.2139/ssrn.1695382
Search in Google Scholar Back to article
Erb C.B., Harvey C.R., Viskanta T.E., (1996), “Political Risk, Economic Risk and Financial Risk”, Financial Analysts Journal, November-December. European Journal of Political Economy 9, 1-23.10.2469/faj.v52.n6.2038
Search in Google Scholar Back to article
Examining American and British stock returns, 1930-2000”, American Journal of Political Science 49, 780-802.
Search in Google Scholar Back to article
Foerster S., Schmitz J., (1997) “The transmission of U.S. election cycles to international stock returns”, Journal of International Business Studies 28, 1-13.10.1057/palgrave.jibs.8490089
Open DOI Search in Google Scholar Back to article
Fosu A. K., (2001) “Political instability and economic growth in developing economies: some specification empirics”, Economics Letters, 70, pp. 289-294.10.1016/S0165-1765(00)00357-8
Open DOI Search in Google Scholar Back to article
Ghura D., Mercereau B., (2004) “Political Instability and Growth: The Central African Greenwood J., Smith B., (1996) “Financial Markets in Development and Development in Financial Markets”, Journal of Economics Dynamic and Control,21: 145-81 Growth”, Journal of African Economies, Vol.8, No.1, pp.87-107.
Search in Google Scholar Back to article
Guillaumont P., Jeanneney, S.G., and Brun J.F., (1999) “How Instability Lowers African 10.1093/jae/8.1.87
Search in Google Scholar Back to article
Gul S., Khan M. T., Saif N., Rehman S., Roohullah (2013) “Stock Market Reaction to Political Events (Evidence from Pakistan)”, Journal of Economics and Sustainable Development, Vol.4, No.1, 2013
Search in Google Scholar Back to article
Haber S., Raz A., Maurer N., (2000) “Political Instability, Credible Commitments and Economic Growth: Evidence from Revolutionary Mexico”, Stanford University.
Search in Google Scholar Back to article
Hibbs D., (1977), Political parties and macroeconomic policy, American Political Science Review, 71, 1467-1487.10.1017/S0003055400269712
Search in Google Scholar Back to article
Hussain F., Qasim M. A., (1997) “The Pakistani Equity Market in 50 Years: A Review”, The Pakistan Development Review, 36:4 Part II (Winter 1997) pp. 863-872
Search in Google Scholar Back to article
Institute of Integrated Development Studies, Katmandu, Nepal (2005) “The Relationship Khan, Shahrukh. "The military and economic development in Pakistan." Political Economy Research Institute, University of Massachusetts working paper series 291 (2012).
Search in Google Scholar Back to article
Khan A., Ahmed M. S., (2009), Trading Volume and Stock Return: The Impact of Events in Pakistan on KSE 100 Indexes”, International Review of Business Research Papers Vol. 5 No. 5 September 2009 Pp. 373-383
Search in Google Scholar Back to article
Khan S.U., Saqib O.F., (2010), “Political instability and inflation in Pakistan” Journal of Asian Economics (8 September 2011)
Search in Google Scholar Back to article
Kim H.Y., and Mei J.P., (2001) “What makes the stock market jump? An analysis of political risk on Hong Kong stock returns”, Journal of International Money and Finance 20: 1003-1016.10.1016/S0261-5606(01)00035-3
Search in Google Scholar Back to article
Klibanoff P., Lamont O., Wizman, T., 1998, “Investor reaction to salient news in closed-end country funds”, Journal of Finance, 53 (2), 673-99.10.1111/0022-1082.265570
Search in Google Scholar Back to article
Knight B., (2006), “Are policy platforms capitalized into equity prices? Evidence from the Bush/Gore 2000 presidential election”, Journal of Public Economics 90, 751-773.10.1016/j.jpubeco.2005.06.003
Open DOI Search in Google Scholar Back to article
Leblang D., Mukherjee B., (2005), “Government partisanship, elections, and the stock market: Liu T., (2010), “Institutional Investor Protection and Political Uncertainty: Evidence from Cycles of Investment and Elections” Thesis Presented in Partial Fulfillment of the Requirements for the Degree of Master of Science in Administration (FINANCE) at John
Search in Google Scholar Back to article
Molson School of Business Concordia University Montreal, Quebec, Canada Malik. S., Hussain. S., and Ahmed. S., (2009) “Impact of Political Event on Trading volume and Stock Returns: The Case of KSE”, International Review of Business Research Papers, Vol. 5 No. 4 June 2009 Pp. 354-364
Search in Google Scholar Back to article
Mckenzie M., Faff D., Robert W., (2003), “The Determinants of Conditional Autocorrelation in Stock Returns”, The Journal of Financial Research, 26, 259- 274.10.1111/1475-6803.00058
Open DOI Search in Google Scholar Back to article
McMillian D., Speight A., (2002), “Return-volume dynamics in UK futures”, Applied financial economics, 12, 707-713.10.1080/09603100110039773
Search in Google Scholar Back to article
Mei J., Guo L., (2004), “Political uncertainty, financial crisis and market volatility”, European Financial Management 10, 639-657.10.1111/j.1354-7798.2004.00269.x
Search in Google Scholar Back to article
Mitchell M., L., Mulhern J. H., (1994), "The impact of public information on the stock market”, Journal of Business, 49, 496-508.
Search in Google Scholar Back to article
Niederhofer, Gibbs V. S., Bullock J., (1970). “Presidential Elections and the Stock Market” Financial Analysts Journal, 26: 111-113.
Search in Google Scholar Back to article
Ouattara B. (2005) “Modeling the Long Run Determinants of Private Investment in Senegal”, Credit Research Paper, Centre for Research in Economic Development and International Trade, University of Nottingham
Search in Google Scholar Back to article
Pesaran M.H, Shin Y. AND Smith R.J (2001), “Bounds Testing Approaches to the Analysis of Level Relationships” Journal of Applied Econometrics, Journal of Applied Economics, 16: 289 - 326 (200110.1002/jae.616
Open DOI Search in Google Scholar Back to article
Pesaran MH, Shin Y. (1999) “An autoregressive distributed lag modelling approach to cointegration analysis. Chapter 11 in Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium “, Cambridge University Press: Cambridge
Search in Google Scholar Back to article
Przeworski A., Alvarez M., Michael A., Chiebub J., Limongi F., (2000) “Democracy and Developmen”, (New York: Cambridge University Press, N.Y.)
Search in Google Scholar Back to article
Pyun C., Lee S., Nam K., (2000), “Volatility and information flows in emerging equity markets: A case of the Korean stock exchange”, International Review of Financial Analysis, Vol. 9, pp. 405-420.10.1016/S1057-5219(00)00037-5
Search in Google Scholar Back to article
Qureshi M. N., Ali. K.., Khan I. R., (2010), “Political Instability and Economic Development:Pakistan Time-Series Analysis”, International Research Journal of Finance and Economics, Issue 56 , 1450-2887
Search in Google Scholar Back to article
Ragunathan V., and Peker A., (1997), “Price variability, trading volume and market depth: evidence from the Australian futures market”, Applied Financial Economics, Vol. 7, pp. 447-4454.10.1080/096031097333303
Search in Google Scholar Back to article
Razi and Shakir (2005) “Pakistan 58 years- 14 August 1947 to 14 August 2005”, Sang-e-Meel Republic” IMF Working Paper/04/80, African and Asia and Pacific Department.
Search in Google Scholar Back to article
Santa-Clara, P., and Valkanov R. (2003), “The presidential puzzle: Political cycles and the stock market”, Journal of Finance 58, 1841-1872. Sensitivity to Stock Prices,” working paper, McGill University, September 2010
Search in Google Scholar Back to article
Snowberg. E., Wolfers J., Zitzewitz E.,( 2007), “Partisan impacts on the economy: Evidence from markets and close elections”, Quarterly Journal of Economics 122, 807-829.10.1162/qjec.122.2.807
Search in Google Scholar Back to article
Stickel S., Verrecchia R., (1994) “Evidence that Volume Sustains Price Changes”, Financial Analysts Journal (November-December), 57-67.10.2469/faj.v50.n6.57
Open DOI Search in Google Scholar Back to article
Tang C., F., Abosedra S., (2013) “The impacts of tourism, energy consumption and political instability on economic growth in the MENA countries” (6 January 2014) Published by Elsevier Ltd.10.1016/j.enpol.2014.01.004
Search in Google Scholar Back to article
Tauchen G. E., Pitts M., (1983), “The Price Variability Volume Relationship on Speculative Markets”, Econometrica, Vol.51, pp. 485- 505.10.2307/1912002
Search in Google Scholar Back to article
Telatar E., Telatar F., Cavusoglu T., Tosun, U., (2010) “Political instability, political freedom and inflation”, Applied Economics, 2010, 42, 3839-384710.1080/00036840802360237
Open DOI Search in Google Scholar Back to article
Voth H. J., (2002), “Stock price volatility and political uncertainty: Evidence from interwar period”, working paper, Universitat Pompeu Fabra.10.2139/ssrn.342641
Search in Google Scholar Back to article
Wang J., (1994), “A model of competitive trading volume”, Journal of Political Economy, Vol.102, pp. 127-168.10.1086/261924
Open DOI Search in Google Scholar Back to article
William E., Rebelo. S., (1993) “Fiscal Policy and Growth: An Empirical Investigation” Journal of Monetary Economics, 32, (December), pp.417-58.
Search in Google Scholar Back to article
Wolfers J., Zitzewitz E., (2009), “Using markets to inform policy: The case of the Iraq war”, Economica 76, 225-250.10.1111/j.1468-0335.2008.00750.x
Open DOI Search in Google Scholar Back to article
Yi F., (1997) “Democracy, Political Instability and Economic Growth”, British Journal of Political Science, Vol.27, No.3, pp.391-418.10.1017/S0007123497000197
Open DOI Search in Google Scholar Back to article
Zureiqat H. M. (2005), “Political Instability and Economic Performance: A Panel Data
Search in Google Scholar Back to article