Political uncertainty and cross-border equity portfolio allocation decisions: International evidence

Frank Obenpong Kwabi, Agyenim Boateng, Chizindu Wonu, Charles Kariuki and Anna Du

International Review of Financial Analysis, 2023, vol. 87, issue C

Abstract: Political risk models highlight that political uncertainty matters for corporate investment decisions. However, how political uncertainty matters for investment allocation decisions is relatively under-explored. In this study, we examine the impact of political uncertainty associated with national elections on foreign equity portfolio in 48 countries. Our results indicate that political uncertainty reduces international equity allocations to the host country and such reduction appears more pronounced in the election year. Further analysis shows that the interaction between political uncertainty and institutional quality has a positive and significant effect on international equity portfolio flow, suggesting that the value of institutional quality outweighs the negative effects of political uncertainty. Lastly, we find equity home bias to be negative and significant; however, the interaction between political uncertainty and equity home bias appears insignificant.

Keywords: Political uncertainty; Election uncertainty; Foreign equity portfolio flow; Institutional quality (search for similar items in EconPapers)
JEL-codes: D8 F3 H1 H8 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:87:y:2023:i:c:s1057521923000789

DOI: 10.1016/j.irfa.2023.102562

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