Political uncertainty and currency markets

Markus Leippold, Felix Matthys, Philippe Mueller () and Michal Svaton
Additional contact information
Markus Leippold: University of Zurich; Swiss Finance Institute
Felix Matthys: ITAM
Michal Svaton: University of Zurich - Department of Banking and Finance

No 24-13, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We study the impact of political uncertainty on exchange rates and the pricing of currency options. While we do not find clear directional patterns in exchange rates, option prices reflect the heightened political uncertainty around elections and referendums for a cross-section of 30 countries. In general, FX options whose lives span political events are more expensive, with the effect being even stronger for options that protect against domestic currency depreciation.

Keywords: FX option pricing; Volatility and skewness; electoral systems; political uncertainty (search for similar items in EconPapers)
JEL-codes: C58 D72 F31 G13 G14 G15 (search for similar items in EconPapers)
Pages: 69 pages
Date: 2024-01
New Economics Papers: this item is included in nep-ifn and nep-pol
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2413

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