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Political Volatility and Capital Markets: Evidence from Transition

Author

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  • Christopher Hartwell

    () (Department of International Management, Kozminski University
    Institute for Emerging Market Studies, Hong Kong University of Science and Technology
    Center for Social and Economic Research, Warsaw)

Abstract

This paper looks at the effects of political volatility in transition economies to ascertain how nascent political institutions affect fledgling capital markets. Asymmetric (GJR) GARCH modeling of monthly data was taken for 21 transition economies on financial volatility, political volatility, and monetary policy to test the drivers of financial volatility in transition. The key implication from these results is that political stability needs to be tended to both in the formal realm and the informal realm in order to avoid potentially damaging financial volatility. The need for consistent political institutions remains in transition economies as much as in developed countries.

Suggested Citation

  • Christopher Hartwell, 2015. "Political Volatility and Capital Markets: Evidence from Transition," HKUST IEMS Working Paper Series 2015-15, HKUST Institute for Emerging Market Studies, revised Mar 2015.
  • Handle: RePEc:hku:wpaper:201515
    as

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    File URL: http://iems.ust.hk/assets/publications/working-papers-2015/iemswp2015-15.pdf
    File Function: First version, 2015
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    References listed on IDEAS

    as
    1. Goodell, John W. & Vähämaa, Sami, 2013. "US presidential elections and implied volatility: The role of political uncertainty," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 1108-1117.
    2. Papadamou, Stephanos & Sidiropoulos, Moïse & Spyromitros, Eleftherios, 2014. "Does central bank transparency affect stock market volatility?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 31(C), pages 362-377.
    3. Hayo, Bernd & Kutan, Ali M., 2005. "IMF-related news and emerging financial markets," Journal of International Money and Finance, Elsevier, vol. 24(7), pages 1126-1142, November.
    4. Brunetti, Aymo, 1997. " Political Variables in Cross-Country Growth Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 11(2), pages 163-190, June.
    5. Bellettini, Giorgio & Berti Ceroni, Carlotta & Prarolo, Giovanni, 2013. "Political persistence and economic growth," European Journal of Political Economy, Elsevier, vol. 31(C), pages 165-179.
    6. Patelis, Alex D, 1997. " Stock Return Predictability and the Role of Monetary Policy," Journal of Finance, American Finance Association, vol. 52(5), pages 1951-1972, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    volatility; political institutions; transition; stock markets;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P30 - Economic Systems - - Socialist Institutions and Their Transitions - - - General

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