International political risk and government bond pricing

T. Huang, F. Wu, Jing Yu, B. Zhang

Research output: Contribution to journalArticle

24 Citations (Scopus)

Abstract

© 2014 Elsevier B.V. This paper investigates the impact of international political risk on government bond yields in 34 debtor countries using a comprehensive database of 109 international political crises from 1988 through 2007. After employing the total number of international political crises as a proxy for political risk and controlling for country-specific economic conditions, we establish a positive and significant link between international political risk and government bond yields. This is consistent with global bond investors demanding higher returns at times of high political uncertainty. In addition, we show that international political risk has a reduced adverse effect on bond prices when the debtor country has a stable political system and strong investor protection.
Original languageEnglish
Pages (from-to)393-405
JournalJournal of Banking and Finance
Volume55
DOIs
Publication statusPublished - Jun 2015

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