Year: 2014
Type: report
Abstract: We empirically analyze the pricing of political uncertainty, guided by a theoretical model of government policy choice.To isolate political uncertainty, we exploit its variation around national elections and global summits.We find that political uncertainty is priced in the equity option market as predicted by theory.Options whose lives span political events tend to be more expensive.Such options provide valuable protection against the price, variance, and tail risks associated with political events.This protection is more valuable in a weaker economy and amid higher political uncertainty.The effects of political uncertainty spill over across countries.
DOI: 10.3386/w19812
Authors: Bryan Kelly, Lubos Pastor, Pietro Veronesi
Institutions: National Bureau of Economic Research, University of Chicago
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2167833630