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Are political events systematically priced in the stock market? Evidence from Korean listed firms

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  • Are political events systematically priced in the stock market? Evidence from Korean listed firms
  • Choi, Seo Joon; Park, Sunyoung
  • Korea Advanced Institute of Science and Technology


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Title Are political events systematically priced in the stock market? Evidence from Korean listed firms
Similar Titles
Material Type Reports
Author(English)

Choi, Seo Joon; Park, Sunyoung

Publisher

[Daejeon, South Korea]:Korea Advanced Institute of Science and Technology

Date 2016-03
Pages 58
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Economic Conditions
Government and Law < Political Science
Holding SSRN

Abstract

We examine how the political events represented by government regime changes affect the equity market as a systematic risk factor in Korea. We first identify the risk realized by the political event (government regime changes) using simple consumption-based general equilibrium model, and show that the risk is related with three channels. Then, we empirically develop our novel risk factor, political event factor (PF), to capture the political event risk in equity market. The PF becomes statistically significant in explaining the cross sectional variation of Fama-French 25 size-B/M portfolios and 25 size-OP portfolios. The PF factor loading have the greatest exposure for the growth stocks, lowest profitability stocks, and the highest profitability stocks. The PF becomes more significant after the Asian crisis in 1997. (The rest omitted)