Sovereign Risk, Elections, and Contagion

Chi Li, Christopher Balding () and Minsoo Lee
Additional contact information
Chi Li: Citic Securities

No 348, ADB Economics Working Paper Series from Asian Development Bank

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.

Keywords: election; sovereign bond; contagion; financial crisis; Europe; Asia (search for similar items in EconPapers)
JEL-codes: F34 F36 O52 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2013-07-19
Note: http://www.adb.org/sites/default/files/pub/2013/ewp-348.pdf
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.adb.org/publications/sovereign-risk-elections-and-contagion Full text (text/html)

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:ris:adbewp:0348

Access Statistics for this paper

More papers in ADB Economics Working Paper Series from Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines. Contact information at EDIRC.
Bibliographic data for series maintained by Orlee Velarde ().