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The impact of political risk on the volatility of stock returns: the case of Canada

Author

Listed:
  • Marie-Claude Beaulieu

    (Faculté des sciences de l'administration, Université Laval, Québec, Canada)

  • Jean-Claude Cosset

    (Service de l'enseignement des affaires internationales, HEC Montréal, Canada)

  • Naceur Essaddam

    (Department of Business Administration, Royal Military College of Canada, Canada)

Abstract

This paper examines the impact of political risk in Canada on the volatility of stock returns. Our results suggest that political news associated with the possible separation of Quebec from Canada plays an important role in the volatility of stock returns. However, our evidence indicates that investors do not require a risk premium, supporting the idea that political risk is diversifiable. We also show that stock return volatility varies with the degree of a firm's exposure to political risk, namely, the structure of assets and the extent of foreign involvement, which indicates that firms most exposed to political risk bear the burden of diversification. Journal of International Business Studies (2005) 36, 701–718. doi:10.1057/palgrave.jibs.8400160

Suggested Citation

  • Marie-Claude Beaulieu & Jean-Claude Cosset & Naceur Essaddam, 2005. "The impact of political risk on the volatility of stock returns: the case of Canada," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 36(6), pages 701-718, November.
  • Handle: RePEc:pal:jintbs:v:36:y:2005:i:6:p:701-718
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    Citations

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    Cited by:

    1. repec:exl:25engi:v:27:y:2016:i:2:p:151-162 is not listed on IDEAS
    2. Baker, Jessica & Carreras, Oriol & Kirby, Simon & Meaning, Jack & Piggott, Rebecca, 2016. "Modelling events: The short-term economic impact of leaving the EU," Economic Modelling, Elsevier, vol. 58(C), pages 339-350.
    3. Hagigi, Moshe & Sivakumar, Kumar, 2009. "Managing diverse risks: An integrative framework," Journal of International Management, Elsevier, vol. 15(3), pages 286-295, September.
    4. Sung-Hoon Lim, 2011. "Risks in the North Korean Special Economic Zone: Context, Identification, and Assessment," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(1), pages 50-66, January.
    5. Sung-Hoon Lim, 2011. "Risks in the North Korean Special Economic Zone: Context, Identification, and Assessment," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(1), pages 50-66, January.
    6. repec:eee:jiaata:v:21:y:2012:i:2:p:185-197 is not listed on IDEAS
    7. repec:pal:jintbs:v:48:y:2017:i:5:d:10.1057_s41267-016-0055-7 is not listed on IDEAS
    8. Cosset, Jean-Claude & Somé, Hyacinthe Y. & Valéry, Pascale, 2016. "Credible reforms and stock return volatility: Evidence from privatization," Journal of Banking & Finance, Elsevier, vol. 72(C), pages 99-120.
    9. repec:eee:jbfina:v:84:y:2017:i:c:p:152-165 is not listed on IDEAS
    10. repec:asi:ajemod:2017:p:208-222 is not listed on IDEAS
    11. Col, Burcin & Errunza, Vihang, 2015. "Corporate governance and state expropriation risk," Journal of Corporate Finance, Elsevier, vol. 33(C), pages 71-84.
    12. Andrew C. Worthington, 2009. "Political Cycles in the Australian Stock Market since Federation," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 42(4), pages 397-409.

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