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Privatization, Political Risk and Stock Market Development in Emerging Economies

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Author Info
Enrico C. Perotti
Pieter van Oijen

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Abstract

This paper investigates whether privatization in emerging economies has a significant indirect effect on local stock market development through the resolution of political risk. We argue that a sustained privatization is correlated with improvements in perceived political risk. These gains tend to be gradual over the privatization period and are significantly larger in privatizing countries than in nonprivatizing countries, suggesting that the resolution of such risk is endogenous to the privatization process. Our analysis shows further that changes in political risk in general tend to have a strong effect on local stock market development and excess returns in emerging economies, suggesting that political risk is a priced factor. We conclude that the resolution of political risk resulting from successful privatization has been an important source for the rapid growth of stock markets in emerging economies.

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File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp243.pdf
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Paper provided by William Davidson Institute at the University of Michigan Stephen M. Ross Business School in its series William Davidson Institute Working Papers Series with number 243.

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Date of creation: 01 Mar 1999
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Handle: RePEc:wdi:papers:1999-243

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  1. Carla Vieira & Ana Paula Serra, 2005. "Abnormal Returns in Privatization Public Offerings: The Case of Portuguese Firms," Working Papers 2005.43, Fondazione Eni Enrico Mattei. [Downloadable!]
  2. Massimo Florio & Katiuscia Manzoni, 2004. "Abnormal returns of UK privatizations: from underpricing to outperformance," Applied Economics, Taylor and Francis Journals, vol. 36(2), pages 119-136, February. [Downloadable!] (restricted)
  3. Alberto Chong & Alejandro Riaño, 2006. "Political Environment and Privatization Prices," RES Working Papers 4439, Inter-American Development Bank, Research Department. [Downloadable!]
  4. Enrico C. Perotti & Luc Laeven & Pieter van Oijen, 2000. "Confidence Building in Emerging Stock Markets," William Davidson Institute Working Papers Series 366, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
    Other versions:
  5. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2004. "Does Financial Liberalization Spur Growth?," Research series 200405-9, National Bank of Belgium. [Downloadable!]
    Other versions:
  6. Bortolotti, Bernardo & Fantini, Marcella & Siniscalco, Domenico, 2001. "Privatisation Around the World: New Evidence from Panel Data," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  7. Nicola Fuchs-Schündeln & Norbert Funke, 2003. "Stock market liberalizations: Financial and macroeconomic implications," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 139(4), pages 730-761, December. [Downloadable!] (restricted)
  8. Bruno Biais & Enrico Perotti, 2002. "Machiavellian Privatization," American Economic Review, American Economic Association, vol. 92(1), pages 240-258, March. [Downloadable!]
  9. Randall K. Filer & Jan Hanousek & Nauro F. Campos, 1999. "Do Stock Markets Promote Economic Growth," William Davidson Institute Working Papers Series 267, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
    Other versions:
  10. Wdowinski, Piotr, 2004. "Determinants of Country Beta Risk in Poland," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  11. Rene M. Stulz, 2005. "The Limits of Financial Globalization," NBER Working Papers 11070, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  12. Wolfgang Aussenegg, 1999. "Going Public in Poland: Case-by-Case Privatizations, Mass Privatization and Private Sector Initial Public Offerings," William Davidson Institute Working Papers Series 292, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  13. Papaioannou, Elias, 2008. "What Drives International Financial Flows? Politics, Institutions and Other Determinants," CEPR Discussion Papers 7010, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  14. Alberto Chong & Alejandro Riaño, 2006. "El entorno político y los precios de las privatizaciones," RES Working Papers 4440, Inter-American Development Bank, Research Department. [Downloadable!]
  15. Nicola Fuchs-Schündeln & Norbert Funke, 2004. "Stock market liberalizations: Financial and macroeconomic implications," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 140(3), pages 730-761, September. [Downloadable!] (restricted)
  16. Barry Eichengreen & Hui Tong, 2003. "Stock Market Volatility and Monetary Policy: What the Historical Record Shows," RBA Annual Conference Volume, in: Anthony Richards & Tim Robinson (ed.), Asset Prices and Monetary Policy Reserve Bank of Australia. [Downloadable!]
  17. Elias Papaioannou, 2004. "International Bank Flows:Determinants and Institutional Role," Money Macro and Finance (MMF) Research Group Conference 2004 28, Money Macro and Finance Research Group. [Downloadable!]
  18. Carla Vieira & Ana Paula Serra, 2006. "Abnormal Returns in Privatization Public Offerings: The case of Portuguese firms," Notas Económicas, Faculdade de Economia, Universidade de Coimbra, issue 23, pages 6-34, June. [Downloadable!]
  19. Stulz, Rene M., 2005. "The Limits of Financial Globalization," Working Paper Series 2005-1, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
  20. Rodolfo Martell & Rene M. Stulz, 2003. "Equity market liberalizations as country IPOs," NBER Working Papers 9481, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  21. Kai Li, 2004. "The Growth of Global Equity Markets: A Closer Look," Econometric Society 2004 North American Winter Meetings 54, Econometric Society. [Downloadable!]
  22. Chin-Tsai Lin & Yi-Hsien Wang, 2007. "The impact of party alternative on the stock market: the case of Japan," Applied Economics, Taylor and Francis Journals, vol. 39(1), pages 79-85, January. [Downloadable!] (restricted)
  23. Ibolya Schindele, 2003. "Theory of Privatization in Eastern Europe: Literature Review," Working Papers 2003.2, Fondazione Eni Enrico Mattei. [Downloadable!]
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