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Are investors afraid of populism?

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  • Schütz, Claudio
  • Pape, Ulrich

Abstract

In recent years, populism has become a persistent political force globally. This paper explores the long-term consequences of increased populism on financial markets by examining the impact of populist electoral support on the implied cost of equity, i.e., the risk-adjusted return required by investors. We analyze investors' risk perceptions following elections in 25 countries from 1995 to 2021. We find that, as populism increases, investors demand a higher risk-adjusted rate of return. The finding of this populism risk premium is economically significant, driven by the underlying ideology, distinct from a general political uncertainty, and robust to a battery of tests.

Suggested Citation

  • Schütz, Claudio & Pape, Ulrich, 2024. "Are investors afraid of populism?," Finance Research Letters, Elsevier, vol. 61(C).
    • Handle: RePEc:eee:finlet:v:61:y:2024:i:c:s1544612324000795
    DOI: 10.1016/j.frl.2024.105049
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