The impact of political risk on the currencies of emerging markets

Marcelo Bittencourt Coelho dos Santos, Marcelo Klotzle and Antonio Carlos Figueiredo Pinto

Research in International Business and Finance, 2021, vol. 56, issue C

Abstract: This study investigates the effects of political risk on the exchange rate returns of Brazil, Chile, Mexico, and Russia. The results indicate the presence of a risk premium for all currencies. Political risk was observed to negatively impact trade returns for only the Brazilian real, a result of depreciating the exchange rate. This effect was not observed for the other countries analyzed. In Brazil, transitory risk-premium volatility was positively associated with both the VIX index and political risk, indicating that greater global and local political risk increased volatility. Furthermore, local political risk had a more significant impact on risk-premium volatility than global risk.

Keywords: Interest rate parity; Risk premium; Political risk; Exchange rates (search for similar items in EconPapers)
JEL-codes: F30 F31 G15 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:56:y:2021:i:c:s0275531920309831

DOI: 10.1016/j.ribaf.2020.101375

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