Political uncertainty and market reaction: the case of Tunisian democratic transition

Linda Fakhfakh, Taher Hamza and Siwar Ellouz

American Journal of Finance and Accounting, 2018, vol. 5, issue 3, 293-321

Abstract: Political risk is an important factor that affects stock market reaction. Our paper investigates the impact of Tunisian democratic transition on both stock market and bank sector returns. We use the event study and BHAR methodologies and test the relation between political risk and stock returns in the short and long-term horizon. Our results show that: 1) In the short-term, the political risk associated with the 'revolution' event, affects negatively the stock market returns. This impact is positive in the long-term. 2) The '2014 elections' event positively affects stock market returns in the short-term and negatively over 18 months. 3) For the '2011 elections' event, the short-term positive effect seems to persist for long-term. 4) Lastly, in the context of democratic transition, political risk affects negatively the bank sector returns. This study proposes several managerial implications for investors as well as for market regulators.

Keywords: political risk; bank sector; revolution and democratic transition; event study; BHAR methodology. (search for similar items in EconPapers)
Date: 2018
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