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In this study, we investigate the short run effect of the 30 October 1995 Quebec referendum on the common stock returns of Quebec firms. Our results show that the uncertainty surrounding the referendum outcome had an impact on stock returns of Quebec firms. We also find that the effect of the referendum varied with the political risk exposure of Quebec firms, that is, the structure of assets and principally the degree of foreign involvement. JEL classification: G14, G15 L'incertitude politique et rendements boursiers: Re´sultats relatifs au re´fe´rendum que´be´cois de 1995. Dans cette e´tude, nous examinons l'impact a`court terme du re´fe´rendum que´be´cois du 30 octobre 1995 sur les rendements boursiers d'entreprises ayant leur sie`ge social au Que´bec. Nos re´sultats sugge`rent que l'incertitude entourant les re´sultats du re´fe´rendum a eu un effet a`court terme sur les rendements boursiers des entreprises que´be´coises. Ils montrent aussi que l'impact du re´fe´rendum a varie´avec l'exposition des entreprises que´be´coises au risque politique, a`savoir, leur type d'actifs et surtout leur degre´de participation e´trange`re.

This paper examines the impact of political risk in Canada on the volatility of stock returns. Our results suggest that political news associated with the possible separation of Quebec from Canada plays an important role in the volatility of stock returns. However, our evidence indicates that investors do not require a risk premium, supporting the idea that political risk is diversifiable. We also show that stock return volatility varies with the degree of a firm's exposure to political risk, namely, the structure of assets and the extent of foreign involvement, which indicates that firms most exposed to political risk bear the burden of diversification. Journal of International Business Studies (2005) 36, 701–718. doi:10.1057/palgrave.jibs.8400160

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