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State-controlled companies and political risk: Evidence from the 2014 Brazilian election

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  • Carvalho, Augusto
  • Guimaraes, Bernardo

Abstract

The 2014 Brazilian election offers an opportunity to estimate the vulnerability of state-controlled companies to political risk. This paper proposes a method for studying the effect of an election on asset prices using only data on stock options. We apply this method to the 2014 Brazilian Presidential election. Results suggest that Petrobras, the Brazilian oil company, would be worth around 60%–65% more if the incumbent, Ms. Rousseff, had not been reelected. We also find that reelection had a negative impact on the stock market index, but state-controlled companies were more strongly affected.

Suggested Citation

  • Carvalho, Augusto & Guimaraes, Bernardo, 2018. "State-controlled companies and political risk: Evidence from the 2014 Brazilian election," Journal of Public Economics, Elsevier, vol. 159(C), pages 66-78.
    • Handle: RePEc:eee:pubeco:v:159:y:2018:i:c:p:66-78
    DOI: 10.1016/j.jpubeco.2018.02.002
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    1. Carvalho, Augusto & Guimaraes, Bernardo, 2018. "State-controlled companies and political risk: Evidence from the 2014 Brazilian election," Journal of Public Economics, Elsevier, vol. 159(C), pages 66-78.
    2. Ding, Qian & Huang, Jianbai & Gao, Wang & Zhang, Hongwei, 2022. "Does political risk matter for gold market fluctuations? A structural VAR analysis," Research in International Business and Finance, Elsevier, vol. 60(C).
    3. Lorraine Eden & Stewart R. Miller & Sarfraz Khan & Robert J. Weiner & Dan Li, 2022. "The event study in international business research: Opportunities, challenges, and practical solutions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 53(5), pages 803-817, July.
    4. Olayinka Oyekola & Meryem Duygun & Samuel Odewunmi & Temitope Fagbemi, 2023. "Political risk and external finance: Evidence from cross-country firm-level data," Discussion Papers 2312, University of Exeter, Department of Economics.
    5. Carlos Viana de Carvalho & Eduardo Zilberman & Ruy Ribeiro, "undated". "Sentiment, Electoral Uncertainty and Stock Returns," Textos para discussão 655, Department of Economics PUC-Rio (Brazil).

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    More about this item

    Keywords

    Election risk; State intervention; Expropriation; Options;
    All these keywords.

    JEL classification:

    • H13 - Public Economics - - Structure and Scope of Government - - - Economics of Eminent Domain; Expropriation; Nationalization
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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