Political uncertainty and stock returns : evidence from the Brazilian political crisis
Hillier, David and Loncan, Tiago (2019) Political uncertainty and stock returns : evidence from the Brazilian political crisis. Pacific-Basin Finance Journal, 54. pp. 1-12. ISSN 0927-538X (https://doi.org/10.1016/j.pacfin.2019.01.004)
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Abstract
This paper examines the effect of political uncertainty on stock returns, exploiting an exogenous shock to political stability in Brazil. In May, 2017, a conversation between Brazil's President and a businessman was bugged by Brazilian Police and leaked to the media. This led to sudden political instability and a collapse in the equity market. We decompose the cross-sectional variation of abnormal returns around this event and investigate whether corporate political connections and exposure to foreign capital were factors in the price falls. Our results show that firms connected with the Brazilian state-owned development bank, BNDES, and firms cross-listed via ADRs (American Depositary Receipts) were most affected by this shock. The evidence suggests that political connections and foreign capital exposure are factors in channeling political risk to asset prices, increasing the cost of equity capital during periods of political instability.
ORCID iDs
Hillier, David ORCID: https://orcid.org/0000-0002-1591-4038 and Loncan, Tiago ORCID: https://orcid.org/0000-0002-2713-4055;-
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Item type: Article ID code: 66664 Dates: DateEvent1 April 2019Published22 January 2019Published Online16 January 2019AcceptedSubjects: Social Sciences > Finance Department: Strathclyde Business School > Accounting and Finance Depositing user: Pure Administrator Date deposited: 21 Jan 2019 15:30 Last modified: 04 Oct 2024 00:29 Related URLs: URI: https://strathprints.strath.ac.uk/id/eprint/66664