Special Issue "Political Risk in Financial Markets"

A special issue of Journal of Risk and Financial Management (ISSN 1911-8074). This special issue belongs to the section "Risk".

Deadline for manuscript submissions: 28 February 2022.

Special Issue Editor

Dr. Vanja Piljak
E-Mail Website
Guest Editor
School of Accounting and Finance, University of Vaasa, P.O. Box 700, 65101 Vaasa, Finland
Interests: emerging markets; frontier markets; political risk; country risk; financial integration; financial development

Special Issue Information

Dear Colleagues,

The topic of political risk and uncertainty is becoming increasingly important in the context of international financial markets. The concept of political risk encompasses many facets, such as political leadership, quality of bureaucracy, corruption in government, law and order tradition, and military in politics, among others. The political risk was traditionally considered as a country-specific characteristic of emerging markets, but due to increased liberalization, globalization, and integration of financial markets, it has become a relevant issue for all international investors, especially in terms of portfolio management. Furthermore, geopolitical risk has received significant attention from investors in the last two decades, following increasing geopolitical uncertainty associated with terroristic attacks, wars, and tensions between states.

This Special Issue focuses on the broader theme of “Political Risk in Financial Markets” and aims to include novel research on the impact of political risk, geopolitical risk, and country risk on the financial markets. Papers will be considered for inclusion in the following topic areas (but not be limited to only those topics):

  • Political risk and stock pricing;
  • Political uncertainty;
  • Geopolitical risk in financial markets;
  • Impact of international political crises on financial integration;
  • Role of political risk in government bond markets;
  • Political risk in emerging financial markets;
  • Hedging geopolitical risk.

Dr. Vanja Piljak
Guest Editor

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All papers will be peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 100 words) can be sent to the Editorial Office for announcement on this website.

Submitted manuscripts should not have been published previously, nor be under consideration for publication elsewhere (except conference proceedings papers). All manuscripts are thoroughly refereed through a single-blind peer-review process. A guide for authors and other relevant information for submission of manuscripts is available on the Instructions for Authors page. Journal of Risk and Financial Management is an international peer-reviewed open access monthly journal published by MDPI.

Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 1200 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.

Keywords

  • political risk
  • geopolitical risk
  • country risk
  • political uncertainty
  • international financial markets
  • international political crises
  • financial stability
  • emerging markets
  • hedging
  • asset management
  • risk premium
  • portfolio diversification

Published Papers (7 papers)

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Research

Article
A New Approach for Risk of Corporate Bankruptcy Assessment during the COVID-19 Pandemic
J. Risk Financial Manag. 2021, 14(12), 590; https://doi.org/10.3390/jrfm14120590 - 07 Dec 2021
Viewed by 493
Abstract
The consequences of COVID-19 will aggravate existing multidimensional risks and reveal new ones. The research gap allows contributing to recognizing the exogenous risk factors of corporate bankruptcy during the COVID-19 pandemic in EU countries. This study aims at revealing how to evaluate the [...] Read more.
The consequences of COVID-19 will aggravate existing multidimensional risks and reveal new ones. The research gap allows contributing to recognizing the exogenous risk factors of corporate bankruptcy during the COVID-19 pandemic in EU countries. This study aims at revealing how to evaluate the risk of corporate bankruptcy phenomenon in the COVID-19 times. The question arises as to whether Schumpeter’s creative destruction approach is still accurate. The article concentrates on implementing the fsQCA (fuzzy set Qualitative Comparative Analysis) method to identify and evaluate the main exogenous drivers of corporate bankruptcy in EU countries based on Fragile States Index data. This new approach focuses on fuzzy sets theory. The fsQCA method is a globally recognized alternative to quantitative analysis (in which the causal complexity is ignored) and qualitative methods for examining individual cases (which do not have the tools to generalize on their basis). The research indicates and examines the main external factors that would increase the risk of corporate bankruptcy in EU countries: namely, economic decline, uneven economic development, unemployment rate, demographic pressure, and government debt. The study discusses the influence of zombie companies on economies during the COVID-19 pandemic. Identifying risk factors that determine the threat of corporate bankruptcy may constitute practical recommendations for business and restructuring practitioners, financial institutions, and banking and public sector representatives in creating warning and recovery measures during the COVID-19 pandemic. Full article
(This article belongs to the Special Issue Political Risk in Financial Markets)
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Article
A Novel Measure of Political Risk and Foreign Direct Investment Inflows
J. Risk Financial Manag. 2021, 14(10), 482; https://doi.org/10.3390/jrfm14100482 - 12 Oct 2021
Viewed by 334
Abstract
This paper proposes a novel measure of political risk that confirms some of the findings documented in the Foreign Direct Investments (FDI) literature. Particularly, we confirm the positive relationship between political stability and its components on FDI inflows, and the moderating effect of [...] Read more.
This paper proposes a novel measure of political risk that confirms some of the findings documented in the Foreign Direct Investments (FDI) literature. Particularly, we confirm the positive relationship between political stability and its components on FDI inflows, and the moderating effect of natural resources on this relationship. The proposed political risk measure contains relevant, unique and incremental information not observed in the literature. For example, although this measure is highly correlated with the political risk rating of the International Country Risk Guide (ICRG), it contains unique information that explains FDI inflows beyond what is explained by the ICRG rating. A link to the database for our political risk rating for 150 countries covering 2000 to 2015 has been provided. Full article
(This article belongs to the Special Issue Political Risk in Financial Markets)
Article
Market Behavior in the Face of Political Violence: Evidence from Tsarist Russia
J. Risk Financial Manag. 2021, 14(9), 445; https://doi.org/10.3390/jrfm14090445 - 15 Sep 2021
Viewed by 432
Abstract
Even efficient financial markets may break down under periods of prolonged stress, especially when the ramification of an event is unclear. Political violence is such an event, sending immediate signals about possible impact on firm valuations but unclear information about the future viability [...] Read more.
Even efficient financial markets may break down under periods of prolonged stress, especially when the ramification of an event is unclear. Political violence is such an event, sending immediate signals about possible impact on firm valuations but unclear information about the future viability of existing institutions. This paper examines the effect of political violence in 19th century Russia on its stock market; using a battery of unit root and variance ratio tests, the evidence is that Russian financial markets were mostly efficient in processing short-term information from political violence. However, when violence was at its peak between the assassination of the Tsar in 1881 and the 1905 revolution, large deviations from efficiency can be detected, as markets were unsure about the viability of the existing rules of the game. Full article
(This article belongs to the Special Issue Political Risk in Financial Markets)
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Article
Do Terror Attacks Affect the Euro? Evidence from the 21st Century
J. Risk Financial Manag. 2021, 14(8), 349; https://doi.org/10.3390/jrfm14080349 - 30 Jul 2021
Viewed by 478
Abstract
The objective of this paper is to examine whether terror attacks that took place in the Eurozone in the 21st century had a significant effect on the price of the Euro. Its novelty is twofold: it is the first study that assesses the [...] Read more.
The objective of this paper is to examine whether terror attacks that took place in the Eurozone in the 21st century had a significant effect on the price of the Euro. Its novelty is twofold: it is the first study that assesses the impact of such events on the price of the Euro and employs a relatively large number of these events. The event-study methodology is used to deduce whether, after a terror event, the value of the Euro declines vs. other major currencies. We found that it does not, since following such an event, the decline was seldom over 0.5%. We also found, however, evidence of some diversion to safe-haven currencies, such as the Swiss Franc. Regression analysis revealed that factors such as the ‘number of attacks’, the ‘type of target’ and the ‘type of attack’, but not the number of casualties, affected the price of the Euro. Full article
(This article belongs to the Special Issue Political Risk in Financial Markets)
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Article
Did Politicians Use Non-Public Macroeconomic Information in Their Stock Trades? Evidence from the STOCK Act of 2012
J. Risk Financial Manag. 2021, 14(6), 256; https://doi.org/10.3390/jrfm14060256 - 08 Jun 2021
Viewed by 725
Abstract
Existing research shows that members of Congress made informed trades prior to the passage of the STOCK Act of 2012. There is also evidence in the literature to suggest that the STOCK Act was able to deter politicians from trading based on non-public [...] Read more.
Existing research shows that members of Congress made informed trades prior to the passage of the STOCK Act of 2012. There is also evidence in the literature to suggest that the STOCK Act was able to deter politicians from trading based on non-public information. However, the question of whether politicians made informed trades at the market level (using non-public macroeconomic information, not just firm-specific information) in the first place and whether they continued to do so even after the passage of the STOCK Act remains unexamined. We analyze 101,191 individual stock transactions covering the 2004–2014 period and find that the STOCK Act adversely affected the ability of politicians’ aggregated stock trades to predict the stock market returns. Our results imply that politicians used non-public macroeconomic information prior to the STOCK Act, and this legislation was influential in deterring politicians from using non-public macroeconomic information in their stock trades. Our findings also provide input on the current debate on the need for the STOCK Act 2.0. Full article
(This article belongs to the Special Issue Political Risk in Financial Markets)
Article
The Impact of Israeli and Saudi Arabian Geopolitical Risks on the Lebanese Financial Market
J. Risk Financial Manag. 2021, 14(3), 94; https://doi.org/10.3390/jrfm14030094 - 28 Feb 2021
Viewed by 1375
Abstract
Hezbollah is best defined in geopolitics as the Iranian ideology proxy that aims to grow the Persian footprint and to gain geopolitical strategic depth in the region. Its role continuously requires geopolitical conflicts, mainly against Saudi Arabia and Israel—for resistance, ideological, and geopolitical [...] Read more.
Hezbollah is best defined in geopolitics as the Iranian ideology proxy that aims to grow the Persian footprint and to gain geopolitical strategic depth in the region. Its role continuously requires geopolitical conflicts, mainly against Saudi Arabia and Israel—for resistance, ideological, and geopolitical purposes. Being a state within a state, Hezbollah militia makes sovereign geopolitical decisions and forces Lebanon to pay for the consequences. This is the first economic study that empirically investigates under vector autoregression (VAR) models the dynamic causal relationship between Saudi Arabia and Israel’s geopolitical risks and Lebanon’s financial stability and economic activity. The results show that Saudi Arabia and Israel’s geopolitical risks affect Lebanon’s economy differently. Economic and financial stability cannot be promoted independently of regional geopolitical conflict. Full article
(This article belongs to the Special Issue Political Risk in Financial Markets)
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Article
Different Measures of Country Risk: An Application to European Countries
J. Risk Financial Manag. 2021, 14(1), 19; https://doi.org/10.3390/jrfm14010019 - 04 Jan 2021
Cited by 1 | Viewed by 795
Abstract
Country Risk (CR) is a relevant instrument to analyze and understand economic performances and relationships between different countries in the actual economic and political international globalized context. The present work develops indexes for the European Union countries by applying three different methods in [...] Read more.
Country Risk (CR) is a relevant instrument to analyze and understand economic performances and relationships between different countries in the actual economic and political international globalized context. The present work develops indexes for the European Union countries by applying three different methods in the field of formative approach. Our aim is to show how robust CR measurements can be developed by operational and easily computable methods. We identify a set of significant variables included in the reference literature. Then, we propose three simple aggregative processes in order to obtain CR measures, at a precise time and over time. As a result, if we compare the outcomes, similar CR rankings emerge. In other words, there are no relevant differences in results also due to different methods of applications. The findings demonstrate that the choice of the aggregation method depends on the willingness of the researcher to baste the analysis with or without weighing and, therefore, on the semantic content that is assigned to the entire research structure. Each analysis should follow a disinterested theoretical–methodological consistency, knowing that the choice of a particular indexing process in the field of aggregation does not significantly alter the nature of the results compared to what would result by applying a different method. Full article
(This article belongs to the Special Issue Political Risk in Financial Markets)
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