Does policy instability matter for international equity markets?

Lam, Swee-Sum, Zhang, Huiping, and Zhang, Weina (2020) Does policy instability matter for international equity markets? International Review of Finance, 20 (1). pp. 155-196.

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View at Publisher Website: https://doi.org/10.1111/irfi.12222
 
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Abstract

We test whether policy risk is systematically priced in equity returns across 49 countries from 1995 to 2013. We construct two global policy risk factors based on the ratings from international country risk guide. They capture the policy risk from government instability (GOVLMH) and the quality of bureaucracy (BURLMH). Both factors are significantly and positively related to equity returns and the BURLMH factor carries a monthly risk premium of 65 basis points. A country with weaker economic and institutional conditions has more risk exposure to the BURLMH factor whereas a country with high democracy has more risk exposure to the GOVLMH factor. Overall, our study reveals the importance and complexity of policy risk in international equity markets.

Item ID: 54919
Item Type: Article (Research - C1)
ISSN: 1468-2443
Copyright Information: © 2018 International Review of Finance Ltd. 2018
Date Deposited: 09 Oct 2018 00:06
FoR Codes: 15 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 1502 Banking, Finance and Investment > 150205 Investment and Risk Management @ 100%
SEO Codes: 90 COMMERCIAL SERVICES AND TOURISM > 9001 Financial Services > 900102 Investment Services (excl. Superannuation) @ 100%
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