Review of Financial Studies Vol. 33 No. 4 2020

Global Political Uncertainty and Asset Prices

Jonathan Brogaard¹; Lili Dai²; Phong T. H. Ngo³; Bohui Zhang⁴

¹ David Eccles School of Business, University of Utah · ² UNSW Business School, University of New South Wales · ³ College of Business and Economics, Australian National University · ⁴ School of Management and Economics, Shenzhen Finance Institute and CUHK Business School, The Chinese University of Hong Kong, Shenzhen

Abstract

We show that global political uncertainty, measured by the U.S. election cycle, on average, leads to a fall in equity returns in fifty non-U.S. countries. At the same time, market volatilities rise, local currencies depreciate, and sovereign bond returns increase. The effect of global political uncertainty on equity prices increases with the level of uncertainty in U.S. election outcomes and a country’s equity market exposure to foreign investors, but does not vary with the country’s international trade exposure. These findings suggest that global political uncertainty increases investors’ aggregate risk aversion, leading to a flight to safety.

DOI

10.1093/rfs/hhz087

Volume

33

Issue

4

Pages

1737-1780

Language

en

Sources

openalex bibtex:phds-export.bib crossref

Cite

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