The impacts of political uncertainty on asset prices: Evidence from the Bo scandal in China

Laura Xiaolei Liu, Haibing Shu and K.C. John Wei

Journal of Financial Economics, 2017, vol. 125, issue 2, 286-310

Abstract: Models of political risk predict that increases in political uncertainty cause stock prices to fall, especially for politically sensitive firms. We use the event of the Bo Xilai political scandal in 2012 in China as an exogenous shock to identify the impact of political uncertainty on asset prices. We document that the Bo scandal caused a significant drop in stock prices, especially for firms that are more politically sensitive. Further analysis shows that the stock price drop is mainly driven by a change in discount rate, providing strong support for the existence of priced political risk.

Keywords: Political uncertainty; Politically sensitive firms; Stock returns; Discount rate news; Cash flow news (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G18 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (122)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X17301022
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:125:y:2017:i:2:p:286-310

DOI: 10.1016/j.jfineco.2017.05.011

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().