The Effect of Political Instability on Stock Markets: Evidence from the Philippines using Three Approaches​

Tristan Canare, Carl Francis Maliwat and Elisa Nebres
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Carl Francis Maliwat: Bangko Sentral ng Pilipinas
Elisa Nebres: Bangko Sentral ng Pilipinas

No 202519, BSP Discussion Paper Series from Bangko Sentral ng Pilipinas

Abstract: This study analyzed the relationship between political instability and stock market returns using Philippines data. We measured political instability using three approaches: (a) indexes derived from the Google Trends Search Volume Index; (b) indexes created from keyword search in news articles; and (c) a list of specific political instability events. Applying Vector Autoregression (VAR) and Generalized Autoregressive Conditional Heteroskedasticity (GARCH) methods on the first two approaches, we found that political instability, in general, has no significant relationship with the level of stock market returns. However, some forms of political instability–particularly those related to strikes, protests, rallies, impeachment, coup d’etat, and rebellion–are associated with higher stock returns volatility. Meanwhile, applying event study methods on the third approach, we found that certain specific political instability events do affect the level of stock returns, even if overall political instability does not. The conclusion of impeachment trials, selected coup attempts, and certain presidential elections are some of the specific events that can affect the level of stock returns.

JEL-codes: E44 O16 P00 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2025-12
New Economics Papers: this item is included in nep-pol and nep-sea
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Published as BSP Discussion paper No. 2025-19, December 2025

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Persistent link: https://EconPapers.repec.org/RePEc:bhd:dpaper:202519

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