Comparative politics and quasi-rational markets

McMenamin, Iain; Breen, Michael; Muñoz-Portillo, Juan

doi:10.1080/13563467.2016.1183114

Cited by 5 publications

(3 citation statements)

References 71 publications

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“…The effect of partisanship, however, fully disappears when governments face severe political constraints because stock market investors anticipate that the incoming government will not be able to change policy much. McMenamin, Breen, and Muñoz-Portillo (2016) confirm the result that constraints mediate the financial effect of elections for sovereign bond markets and also find a significant difference between majoritarian and proportional systems.…”

Section: Democracy Electoral Systems and Institutional Constraintssupporting

confidence: 58%

The Political Economy of Financial Markets

Ferrara

Sattler

2018

Oxford Research Encyclopedia of Politics

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The relationship between politics and financial markets is central for many, if not most, political economy arguments. The existing literature focuses on the effect of domestic and international political interests, institutions, and policy decisions on returns and volatility in stock, bond, and foreign exchange markets. This research bears implications for three major debates in political science: the distributive effects of politics, globalization and state autonomy, and the political roots of economic credibility and its tensions with democratic accountability. While the study of politics and financial markets is complicated by several theoretical and empirical challenges, recent methodological innovations in political research provide a window of opportunity for the development of the field.

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Section: Democracy Electoral Systems and Institutional Constraintssupporting

confidence: 58%

The Political Economy of Financial Markets

Ferrara

Sattler

2018

Oxford Research Encyclopedia of Politics

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“…At the same time, we establish that elections and election outcomes do not systematically disrupt democracies’ debt issuance. In secondary markets, pre-election stimulus, partisan swings and protracted cabinet formation negotiations involving new players can increase sovereign risk premiums (Bechtel 2009; Bernhard and Leblang 2006; Block, Schrage, and Vaaler 2005; Campello 2015; Hardie 2006; Jensen and Schmith 2005; Leblang and Satyanath 2006; McMenamin, Breen, and Muoz-Portillo 2016; Mosley 2003; Spanakos and Renno 2009). However, unlike outstanding debt for which only the price can adjust, governments and investors can adjust the price and other terms of debt at issuance.…”

Section: The Democratic Advantage and Its Limitsmentioning

confidence: 99%

Contingent Advantage? Sovereign Borrowing, Democratic Institutions and Global Capital Cycles

Ballard-Rosa

Mosley

Wellhausen

2019

Brit. J. Polit. Sci.

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How do domestic and global factors shape governments’ capacity to issue debt in primary capital markets? Consistent with the ‘democratic advantage’, we identify domestic institutional mechanisms, including executive constraints and policy transparency, that facilitate debt issuance rather than electoral events. Most importantly, we argue that the democratic advantage is contingent: investors’ attention to domestic politics varies with conditions in global capital markets. When global financial liquidity is low, investors are risk-averse, and political risk constrains governments’ capacity to borrow. But when global markets are flush, investors are risk-tolerant and less sensitive to political risk. We support our argument with new data on 245,000 government bond issues in primary capital markets – the point at which governments’ costs of market access matter most – for 131 sovereign issuers (1990–2016). In doing so, we highlight the role of systemic factors, which are under-appreciated in much ‘open economy politics’ research, in determining access to capital markets.

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“…Additionally, our expectations regarding volatility are consistent with analyses linking government turnover with financial market outcomes. McMenamin, Breen, and Muñoz-Portillo (2016) find that bond market reactions to OECD elections unfold over several weeks. While they take this as evidence against the efficient markets hypothesis, their findings also imply that elections generate uncertainty not only about outcomes, but also about policies.…”

Section: H2mentioning

confidence: 98%

Sovereign Risk and Government Change: Elections, Ideology and Experience

Brooks

Cunha

Mosley

2022

Comparative Political Studies

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Global capital markets can react dramatically to elections in developing countries, affecting governments’ access to finance and sometimes setting off broader crises. We argue, contrary to some conventional wisdom, that investors do not systematically react to the election of left-leaning parties and candidates. Government ideology is often an imprecise heuristic, given the diversity in policies among parties, especially those on the left. We therefore expect that neither elections generally, nor elections that produce specific partisan outcomes, are associated with significant changes in sovereign financing costs. Yet we also predict that the election of left-leaning parties will generate volatility in sovereign bond markets, reflecting investors’ uncertainty over future policy outcomes. This volatility is especially pronounced when new governments take office; over time, however, government policy performance enables investors to make increasingly precise estimates of political risk. Volatility has implications for the real economy, as well as for governments’ ability to manage their debt. We test, and find support for, our core expectations using monthly data on sovereign bond spreads and credit default swap prices for 74 developing countries from 1994–2015.

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Comparative politics and quasi-rational markets

Cited by 5 publications

References 71 publications

The Political Economy of Financial Markets

The Political Economy of Financial Markets

Contingent Advantage? Sovereign Borrowing, Democratic Institutions and Global Capital Cycles

Sovereign Risk and Government Change: Elections, Ideology and Experience

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