Hellenic Open University Conferences, International Conference on Business & Economics of the Hellenic Open University 2016

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The Effect of Political Instability on Stock Market and Banking Returns: Evidence from Panel Data Regressions
Antonios Sarantidis, Dimitrios Asteriou

##manager.scheduler.building##: Titania
##manager.scheduler.room##: Solon
Date: 2016-04-23 02:00 PM – 04:00 PM
Last modified: 2016-05-25


This paper focuses on the relationship between political instability, banking stock returns and the overall stock market returns. The paper aims to reanalyze the notion of political instability and to estimate its impact on the returns and volatility of the banking and stock market indices. For this purpose, five political instability indicators were constructed by empoying the explanatory factor analysis and the principal component analysis in order to quantify and to measure political uncertainty. These new indicators are constructed from a sum of 27 different variables that are mainly used and metioned in the correspondinf empirical literature of political instability. The sample is based on a panel data set with annual observations on 30 countries from 1970 to 2014. GARCH models are employed in order to estimate the volatility of banking and stock market returns. The main empirical part utilizes the methodology of OLS regressions, producing so some new results. The research contributes to the literature by providing to policy makers a deeper understanding of the effects that political instability has on stock markets.


Political Instability, Terrorism, Corruption, Democracy, Stock Market Returns

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