The effectof political risk on stock markets: A literature review

Abstract

There are different types of risks that investors should consider. The risk, defined as the “probability of deviation of the expected return from the actual return” in the finance literature, is divided into two groups, systematic and non-systematic risks. The purpose of this article is to examine the studies on how the political risk, which is one of the systemic risks, affects the financial markets, and to present the findings obtained in these studies to the readers. In this context, choices from political risk factors, Brexit Referendum, terrorist incidents, wars and international politic risk index were examined and studies in the local and foreign literature were examined. While determining the studies included in the article, studies investigating the results of the related events on stock markets were preferred. Thus, it is aimed that readers will be able to make a general assessment of political risk in stock markets. According to the results of the research conducted with the literature review method, it was determined that the political risk significantly affected the stock returns, and this effect varied depending on different factors such as the type of the event examined, the level of importance and the structure of the markets investigating the impact.

Keywords

• Stock markets
• election
• Brexit
• terrorist incidents
• wars

Politik riskin hisse senedi piyasaları üzerindeki etkisi: Bir literatür taraması

Abstract

Finansal piyasalarda işlem yapan yatırımcıların göz önünde bulundurmaları gereken farklı riskler vardır. Finans literatüründe “beklenen getirinin gerçekleşen getiriden sapma olasılığı” olarak tanımlanan risk, sistematik ve sistematik olmayan riskler olmak üzere iki gruba ayrılır. Bu makalenin amacı sistematik riskler arasında yer alan politik riskin, finansal piyasaları nasıl etkilediği ile ilgili yapılmış çalışmaların incelenerek bu çalışmalarda elde edilen bulguların okuyuculara sunulmasıdır. Bu kapsamda politik risk unsurlarından seçimler, Brexit Referandumu, terör olayları, savaşlar ve uluslararası politik risk endeksi ele alınarak yerli ve yabancı literatürde yapılmış çalışmalar incelenmiştir. Makale kapsamına alınan çalışmalar belirlenirken ilgili olayların hisse senedi piyasaları üzerindeki sonuçlarını araştıran çalışmalar tercih edilmiştir. Böylece okurların politik riskin hisse senedi piyasalardaki karşılığı hakkında genel bir değerlendirme yapabilmesi amaçlanmıştır. Aynı kategorideki olaylar bir arada ele alınarak bu olayların farklı piyasalardaki etkilerinin bir arada sunulması hedeflenmiştir. Literatür taraması yöntemi ile yürütülen araştırma sonuçlarına göre politik riskin hisse senedi getirilerini genel olarak anlamlı düzeyde etkilediği bu etkinin ise incelenen olayın türü, önem düzeyi ve etkisi araştıran piyasaların yapısı gibi farklı unsurlara bağlı olarak değişim gösterdiği tespit edilmiştir.

Keywords

• hisse senedi piyasaları
• brexit
• seçim
• terör eylemleri
• savaşlar

References

1. Abidin, S. ve Marti, T. (2010). Effects of New Zealand general elections on stock market returns. International Review of Business Research Papers, 6(6), 1–12.
2. Abraham, M. (2016). Brexit and disposition effect: Evidence from New Zealand, Australia and Indian stock markets. SSRN Electronic Journal.
3. Aksoy, M. 2014. “The effects of terrorism on Turkish stock market”. Ege Akademik Bakış, 14(1), 31-41.
4. Aksoy, M., ve Demiralay, S. (2019). The effects of terrorism on Turkish financial markets. Defence and Peace Economics, 30(6), 733–755.
5. Algan, N., Balcılar, M., Bal, H., ve Manga, M. (2016). Impact of terrorism on financial markets: The case of Turkey. International Conference on Eurasian Economies 2016, 624–631.
6. Ali, H., Qingshi, W., Memon, A. Z., Baz, K., Ali, I. (2017). How different terrorist attacks affect stock returns evidence from Pakistan stock exchange. International Research Journal of Finance and Economics, 163, 103-120.
7. Amewu, G., Mensah, J. O., ve Alagidede, P. (2016). Reaction of global stock markets to Brexit. Journal of African Political Economy ve Development, 40–55.
8. Aras, I. ve Günar, A. (2018). United Kingdom’s leaving referendum from the European Union: Brexit. International Journal of Political Science ve Urban Studies, 90–110.

9. Aristeidis, S. ve Elias, K. (2018). Empirical analysis of market reactions to the UK’s referendum results – how strong will Brexit be? Journal of International Financial Markets,
10. Institutions and Money, 53, 263–286.
11. Aslam, F. ve Kang, H. G. (2015). How different terrorist attacks affect stock markets. Defence and Peace Economics, 26(6), 634–648.
12. Atik, M., Bülent, Y., Yaşar, K. ve Fatih, S. (2016). Dünya medyasındaki terörizm temalı haberlerin finansal piyasalar üzerindeki etkileri: İstanbul Borsası örneği. Savunma Bilimleri Dergisi, 15(2), 179-205.
13. Ayaydin, H. ve Karaaslan I. (2016). Politik belirsizlik kaynağı olarak seçimler ve firma yatırım kararları : BIST ’ e kayıtlı firmalar, Uluslararası Yönetim İktisat ve İşletme Dergisi (16), 743–755.
14. Bacik, E., Özer, M. ve Altinirmak, S. (2017). Terörün volatilitiye etkisi: Türkiye BIST 100 endeksinde bir uygulama. Optimum Ekonomi ve Yönetim Bilimleri Dergisi, 4(2), 55–75.
15. Bashir, U., Zebende, G. F., Yu, Y., Hussain, M., Ali, A. ve Abbas, G. (2019). Differential market reactions to pre and post Brexit referendum. Physica A: Statistical Mechanics and Its Applications, 515, 151–158.
16. Beaulieu, M. C., Cosset, J. C., ve Essaddam, N. (2006). Political uncertainty and stock market returns: Evidence from the 1995 Quebec Referendum. Canadian Journal of Economics, 39(2), 621–642.
17. Belke, A., Dubova, I., ve Osowski, T. (2018). Policy uncertainty and ınternational financial markets: the case of Brexit. Applied Economics, (50), 34–35.
18. Bialkowski, J., Gottschalk, K., Wisniewski, T.P. (2006). Stock market volatility around national elections, European University Viadrina Working Paper Series, 2006,2.
19. Bonchev, L. (2017). The impact of Brexit vote on stock returns an event study on European Bank Industry. 57.
20. Boubaker, S., Farag, H., ve Nguyen, D. K. (2015). Short-term overreaction to specific events: Evidence from an emerging market. Research in International Business and Finance, 35, 153–165.
21. Breinlich, H., Leromain, E., Novy, D., Sampson, T., Usman, A., ve Sampson, T. (2018). The economic effects of Brexit - evidence from the stock market. Fiscal Studies, 39, 581-623.
22. Bruijn, J.D. (2016). An economic look at terrorism the effects of terrorism on uncertainty and confidence in the Netherlands. Yayımlanmamış Yüksek lisans tezi. Erasmus University Rotterdam, Hollanda.
23. Brune, A., Hens, T., Rieger, M. O., ve Wang, M. (2015). The war puzzle: contradictory effects of international conflicts on stock markets. International Review of Economics, 62(1), 1–28.
24. Burdekin, R. C. K., Hughson, E. ve Gu, J. (2018). A first look at Brexit and global equity markets. applied economics letters, 25(2), 136–140.
25. Cam, M. A. (2008). The impact of terrorism on United States industries. Economic Papers: A journal of applied economics and policy, 27(2), 115-134.
26. Carter, D. A., ve Simkins, B. J. (2004). The market’s reaction to unexpected, catastrophic events: The case of airline stock returns and the September 11th attacks. Quarterly Review of Economics and Finance, 44(4), 539–558.
27. Charles, A., ve Darné, O. (2006). Large shocks and the September 11th terrorist attacks on international stock markets. Economic Modelling, 23(4), 683–698.
28. Chen, A. H., ve Siems, T. F. (2004). The effects of terrorism on global capital markets. European Journal of Political Economy, 20(2), 349–366.
29. Chen, X., Tian, Y., ve Zhao, R. (2017). Study of the cross-market effects of Brexit based on the ımproved symbolic transfer entropy GARCH model an empirical analysis of stock bond correlations. Plos ONE, 12(8), 1–14.
30. Choudhry T. (2010). World War II events and the Dow Jones industrial index. Journal of Banking and Finance 34, 1022–1031.
31. Chrétien, S., ve Coggins, F. (2009). Election outcomes and financial market returns In Canada. North American Journal of Economics and Finance, 20(1), 1–23.
32. Christofis, N., C. Kollias, S. Papadamou ve A. Stagiannis (2010), Terrorism and capital markets: the effects of the İstanbul bombings. Economics of Security Working Paper Series, 31, 1-16.
33. Chuliá, H., Climent, F.J., Soriano, P., ve Torró, H. 2009. Volatility transmission patterns and terrorist attacks. Quantitative Finance, 9(5), 607-619.
34. Dadurkevicius, M. ve Jansonaite, A. (2017). Effects of prescheduled political events on stock markets: the case of Brexit. In SSE Riga Student Research Papers, (11).
35. Davies, R. B., ve Studnicka, Z. (2018). The Heterogeneous impact of Brexit: Early indications from the FTSE. European Economic Review, (110): 1–17.
36. Edward, A., Ve Manoj, J. (2017). Analysis of the effect of BREXIT on the stock indices of US, UK and India: an intervention ARIMA model. Asian Journal of Management, 8(4), 1003.
37. Eldor, R., ve Melnick, R. (2004). Financial markets and terrorism. European Journal of Political Economy, 20(2), 367–386.
38. Erdem M.S. Ve Yalçin E. (2019).Brexit sürecindeki bazı olaylarin S&P500 ve bazı AB Üyesi Ülke borsa endekslerine ve döviz kurlarına etkisi: Olay çalışması. Finans Ekonomi ve
39. Sosyal Araştırmalar Dergisi, 4(3), 346-356.
40. Evrim Mandacı, P. (2003). İMKB’de genel seçimler öncesi ve sonrasında anormal fiyat hareketleri. İMKB Dergisi, 7(27), 1–16.
41. Fernandez, V. (2008). The war on terror and its impact on the long-term volatility of financial markets. International Review of Financial Analysis, 17(1), 1–26.
42. Füss, R., ve Bechtel, M. M. (2008). Partisan politics and stock market performance: The effect of expected government partisanship on stock returns in the 2002 German
43. Federal Election. Public Choice, 135(3–4), 131–150.
44. Gour, R. (2020). Impact of general election on Indian stock market an event study on 2019 Lok Sabha Election. 7(1), 173–182.
45. Graham, M. A., ve Ramiah, V. B. (2012). Global terrorism and adaptive expectations in financial markets: Evidence from Japanese equity market. Research in International Business and Finance, 26(1), 97–119.
46. Guidolin, M. ve la Ferrara, E. (2010). The economic effects of violent conflict: Evidence from asset market reactions. Journal of Peace Research, 47(6), 671–684.
47. Hachenberg, B., Kiesel, F., Kolaric, S., ve Schiereck, D. (2017). The impact of expected regulatory changes: The case of banks following the 2016 U.S. Election. Finance Research Letters, 22, 268–273.
48. Hudson, R., ve Urquhart, A. (2014). War and stock markets: The effect of World War Two on the British stock market. International Review of Financial Analysis, 40, 166–177.
49. Jones, S. T., Ve Banning, K. (2009). US elections and monthly stock market returns. Journal of Economics and Finance, 33(3), 273–287.
50. Kabiru, J. N., Elly, D., Hellen, O., Ve Kinyua, W. (2015). The effect of general elections on stock returns at the Nairobi securities exchange. European Scientific Journal, 11(28), 1857–7881.
51. Khalil, F., ve Akhtar, W. (2017). Impact of terrorist attacks on stock market performance: A case of Pakistan. Asian Journal of Economic Modelling, 5(2), 208–222.
52. Kollias, C., Kyrtsou, C., ve Papadamou, S. (2013). The effects of terrorism and war on the oil price-stock index relationship. Energy Economics, 40, 743–752.
53. Kollias, C., Papadamou, S., ve Stagiannis, A. (2011). Terrorism and capital markets: The effects of the Madrid and London bomb attacks. International Review of Economics and Finance, 20(4), 532–541.
54. Kollias, C., S. Papadamou ve A. Stagiannis (2011). Terrorism and capital markets: the effects of the Madrid and London bomb attacks. International Review of Economics and Finance, 20, 532-541.
55. Korkmaz, Ö., Erer, D. ve Erer, E. (2017). Terör olaylarının finansal piyasalar üzerine etkisi. Sosyoekonomi, 25(31), 11.
56. Kurecic, P., ve Kokotovic, F. (2018). Empirical analysis of the impact of Brexit Referendum and post-referendum events on selected stock exchange indexes. South East
57. European Journal of Economics and Business, 13(1), 7–16.
58. Laqueur, W. (1987), The Age of Terrorism, Little Brown and Company, Boston, MA.
59. Lehrer, N. D. (2018). The value of political connections in a multiparty parliamentary democracy: Evidence from the 2015 Elections in Israel. European Journal of Political Economy, 53: 13–58.
60. Menge, N. R., Mwangi, K. M., ve Githii, J. (2014). Effect of elections on stock market returns at the Nairobi Securities Exchange. Prime Journal of Social Science, 3(6), 763–768.
61. Morales, L., Ve andreosso-O’Callaghan, B. (2018). The impact of Brexit on the stock markets of the Greater China Region. International Journal of Financial Studies, 6(2), 51.
62. Mun, C. K. C. (2005). Contagion and impulse response of international stock markets around the 9-11 terrorist attacks. Global Finance Journal, 16(1), 48–68.
63. Najaf, K., Najaf. R., Iqbal, A. ve Shah. H. I. (2015). The impact of terrorism and political events on stock market: empirical evidence from Pakistan. International Journal of Scientific Research and Management (IJSRM). 3 (6), 3036-3045.
64. Nezerwe, Y. (2013). Presidential elections and stock returns in Egypt. Review of Business and Finance Studies, 4(2), 63–68.
65. Nippani, S., ve Medlin, W. B. (2002). The 2000 Presidential election and the stock market. Journal of Economics and Finance, 26(2), 162–169.
66. Omar, A. M. A., Wisniewski, T. P., ve Nolte, S. (2017). Diversifying away the risk of war and cross-border political crisis. Energy Economics, 64, 494–510.
67. Opare, A. (2013). Effects of general elections on the return and volatility of stocks: The evidence from Europe. SSRN Electronic Journal.
68. Pantzalis, C., Stangeland, D. A. ve Turtle, H. J. (2000). Political elections and the resolution of uncertainty: The international evidence. Journal of Banking and Finance, 24(10): 1575–1604.
69. Pham, H. N. A., Ramiah, V., Moosa, N., Huynh, T., ve Pham, N. (2018). The financial effects of Trumpism. Economic Modelling, 74: 264–274.
70. Ramiah, V., Cam, M. A., Calabro, M., Maher, D., ve Ghafouri, S. (2010). Changes in equity returns and volatility across different Australian industries following the recent terrorist attacks. Pacific Basin Finance Journal, 18(1), 64–76.
71. Ramiah, V., Pham, H. N. A., ve Moosa, I. (2017). The sectoral effects of Brexit on the British economy: Early evidence from the reaction of the stock market. Applied Economics, 49(26), 2508–2514.
72. Rigobon, R., ve Sack, B. (2005). The effects of war risk on US financial markets. Journal of Banking and Finance, 29(7), 1769–1789.
73. Sajid Nazir, M., Younus, H., Kaleem, A., ve Anwar, Z. (2014). Impact of political events on stock market returns: empirical evidence from Pakistan. Journal of Economic and Administrative Sciences, 30(1), 60–78.
74. Saragih, E., Sadalia, I., Syahputra Silalahi, A., ve Author, C. (2019). The impact of presidential election on abnormal return, trading volume activity, security return variability in banking ındustries listed on the Indonesia stock exchange. International Journal of Research and Review (6), 246–261.
75. Sathyanarayana, S. ve Gargesha, S. (2016). Impact of Brexit referendum on Indian stock market. IRA-International Journal of Management and Social Sciences, 5(1), 104.
76. Schneider, G. ve Troeger, V. E. (2006). War and the world economy: Stock market reactions to international conflicts. Journal of Conflict Resolution, 50(5), 623–645.
77. Shaikh, I. (2017). The 2016 U.S. Presidential election and the stock, FX and VIX Markets. North American Journal of Economics and Finance, 42, 546–563.
78. Shaikh, I. (2019). The impact of terrorism on Indian securities market. Economic Research-Ekonomska Istrazivanja , 32(1), 1744–1764.
79. Shea B.P., Bacon F.W., (2018) Stock split announcements: A test of market efficiency, Institute For Global Business Research Conference Proceedings, 2(1), 27-31.
80. Simeunovic, K. (2016). An analysis of the effect of war on the United States Stock Market, Senior Thesis, Lake Forest College, ABD.
81. Smales, L. A. (2015). Better the devil you know: The influence of political incumbency on Australian financial market uncertainty. Research In International Business and Finance, 33, 59–74.
82. Volodin, S. N., ve Mikhalev, A. G. (2017). Analyzing the impact of terrorist attacks on stock index dynamics. Финансы И Кредит, 23(10), 575–598.
83. Wagner, A. F., Zeckhauser, R. J., ve Ziegler, A. (2018). Company stock price reactions to the 2016 election shock: Trump, taxes, and trade. Journal of Financial Economics, 130(2), 428–451.
84. Wolfers, J., ve Zitzewitz, E. (2009). Using markets to inform policy: The case of the Iraq war. Economica, 76(302), 225–250.