TY - JOUR
T1 - Political uncertainty and stock returns: Evidence from the Brazilian political crisis
AU - Loncan, Tiago
AU - Hillier, David
PY - 2019
Y1 - 2019
N2 - 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.
AB - 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.
U2 - 10.1016/j.pacfin.2019.01.004
DO - 10.1016/j.pacfin.2019.01.004
M3 - Article
SN - 0927-538X
VL - 54
SP - 1
EP - 12
JO - Pacific-Basin Finance Journal
JF - Pacific-Basin Finance Journal
ER -