Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/109474
Year of Publication: 
2013
Series/Report no.: 
ADB Economics Working Paper Series No. 348
Publisher: 
Asian Development Bank (ADB), Manila
Abstract: 
This paper aims to quantify the political risk effect and its different economic implications in normal and crisis situations through the proxy analysis of election and the sovereign bond spreads. Our study leads to three main findings. First, in normal economic situations, elections and government turnovers expand bond spreads, demonstrating investors' concern over the possibility of government policies or instability brought by the election. During a crisis, however, investors prefer change, indicating hope in new policies ameliorate public finances. Second, due to the prolonged eurozone sovereign debt crisis, elections in European countries have stronger contagion effects in their own region during a global slowdown period than a normal period. However, their effect does not carry over globally after the 2008 financial crisis. Third, results show that the election induced peak shrinks from 3 months before and after the election date to 1–2 months when the economic situation turns from normal to a downgraded period.
Subjects: 
election
sovereign bond
contagion
financial crisis
Europe
Asia
JEL: 
F34
F36
O52
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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