The Price of Political Uncertainty: Theory and Evidence from the Option Market

• 成果类型: Article
• 署名作者: Kelly, Bryan; Pastor, Lubos; Veronesi, Pietro
• 署名单位: University of Chicago; National Bureau of Economic Research; Center for Economic & Policy Research (CEPR)
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.12406
• 发表日期: 2016
• 页码: 2417-2480
• 关键词: IMPLIED VOLATILITY; risk premia; STOCK; jump; RESOLUTION; ELECTIONS; IMPACT; fears; crash

摘要

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.