Effect of the Political Risk on Capital Asset Valuation in Financial Markets: The Case of Turkey

Cengiz Toraman and Merve Tuncay
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Cengiz Toraman: Izmir Democracy University
Merve Tuncay: Cumhuriyet University

Business and Economics Research Journal, 2017, vol. 8, issue 3, 413-432

Abstract: Recent political events and the subsequent movements in financial markets both in the developing and the developed countries raise the instincts regarding the interaction of political risks and financial markets and increase the importance of understanding the behavior of financial markets against political risks. Therefore the purpose of this study is to explain the impact of political risks on the returns of securities traded on capital markets in Turkey in the framework of Capital Asset Pricing Model (CAPM). The relation between the monthly returns of 47 companies’ assets being traded on Borsa Istanbul and the political risks in Turkey between the years of 1997 and 2013 is examined in the study. Results of the analysis held by two-step regression method represent that there exists a positive and linear relation between beta and expected return. On the other hand, it is found that 4 out of 12 political risk factors, in other words internal conflict, external conflict, government stability and military in politics have a significant impact on expected return. Contrary to the other three risk factors, only the risk of government stability is found to be positively affecting asset returns.

Keywords: Political Risk; Borsa Istanbul; Capital Asset Pricing Model; Financial Markets (search for similar items in EconPapers)
JEL-codes: C31 C32 E44 G11 G12 P48 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:ris:buecrj:0280

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