S-WoPEc
 
Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Stockholm Institute of Transition Economics, Stockholm School of Economics SITE Working Paper Series

No 9:
Portfolio Managers and Elections in Emerging Economies: How investors dislike political uncertainty

Emmanuel Frot () and Javier Santiso ()

Abstract: This paper studies the effect of elections and democracy on bond and equity flows to emerging countries. Our results indicate that elections affect portfolio flows: the period following an election is generally characterised by a fall in equity flows, and this occurs only where the incumbent is not re-elected. We interpret this result as evidence that political uncertainty about future policies plays a key role in explaining the effect of elections. Bond flows decrease after an election that brings a change of ideology in government, with some evidence that this effect is stronger if such change is from right- to leftwing. This set of results suggests that investors value continuity and stability in the political environment, and dislike changes. Finally, democracy, in itself, is not found to significantly influence portfolio equity and bond flows, such that there is no democratic premium. On the other hand, a decrease in the democracy score implies lower equity flows. Investors value continuity (stable democracy level, even if low) rather than improvements (democratic transitions) but are responsive to a deterioration in the democratic environment that is often accompanied by less transparency, and therefore greater uncertainty.

Keywords: Portfolio decisions; Elections; (follow links to similar papers)

JEL-Codes: F59; G11; G15; (follow links to similar papers)

41 pages, October 6, 2010

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

hasite0009.pdf    PDF-file (686kB) 
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Evelina Bonnier ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:hasite:0009 This page was generated on 2015-03-25 00:18:28