Affiliation:
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
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.(JEL F30, F36, G12, G15, G18)
Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
Publisher
Oxford University Press (OUP)
Subject
Economics and Econometrics,Finance,Accounting
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