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Democracy, political risks and stock market performance

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  • Lehkonen, Heikki
  • Heimonen, Kari

Abstract

This study examines the impacts of democracy and political risk on stock market. Using annualized panel data for 49 emerging markets for 2000–2012 we find evidence that democracy and political risk do have impact on stock market returns and the relationship between democracy and political risk is parabolic, i.e., there is a threshold level of democracy after which political risk begins to decline. Also our results suggest that decreases in political risk lead to higher returns.

Suggested Citation

  • Lehkonen, Heikki & Heimonen, Kari, 2015. "Democracy, political risks and stock market performance," Journal of International Money and Finance, Elsevier, vol. 59(C), pages 77-99.
  • Handle: RePEc:eee:jimfin:v:59:y:2015:i:c:p:77-99
    DOI: 10.1016/j.jimonfin.2015.06.002
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    More about this item

    Keywords

    Democracy; Political risk; Emerging markets; Stock market performance;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • F52 - International Economics - - International Relations, National Security, and International Political Economy - - - National Security; Economic Nationalism

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